Low-cost UK shares like penny stocks are unpopular with many investors. This is because their cheapness and low liquidity can often result in significant share price volatility.
The prospect of temporary choppiness doesn’t put me off, though. This is because I buy UK shares with a view to holding them for the long haul. Let me present three top nearly penny stocks I’d buy right now to make robust long-term returns.
I think Tribal Group’s (LSE: TRB) recent transformation programme could reap terrific rewards in the years ahead. This low-cost UK share offers a range of software services that allow educational institutions to serve and communicate with their students more effectively. And recently the IT firm has switched to a “software as a service” (SaaS) model to boost recurring revenues and give earnings growth a shot in the arm.
The former penny stock has been active on the M&A front too and recently acquired scheduling-and-timetabling-solutions specialist Semestry. It also continues to invest heavily in its Edge cloud-based range of products and launched its Edge Admissions module last month. I think it’s a top buy despite the ever-present risk of systems failure and data loss. Such occurrences could cause significant reputational damage that might harm sales to existing and potential customers.
Another top nearly penny stock
Zoo Media Group’s (LSE: ZOO) a nearly penny stock I think will thrive in an increasingly digitalised world. This particular UK share offers cloud-based media services to movie studios, streaming services, and television producers. Not only is it benefiting from the huge investment streamers like Netflix are spending on their own content. Zoo Media is also enjoying soaring demand for its localisation services as content is beamed around the world and dubbing and subtitling is needed.
I’d buy this UK share even though its elevated valuation could cause a problem later on. Zoo Media’s forward price-to-earnings (P/E) ratio of 55 times might prompt a share price crash if news flow around the company starts to disappoint.
I think pensions consultancy and administrator XPS Pensions Group (LSE: XPS) is a cheap UK share that could thrive as the country’s population rapidly ages. Office for National Statistics data shows that the number of Brits aged between 65 and 84 rocketed 23% in the decade to 2018. It has been suggested that the over-65s could represent a quarter of the domestic population by 2050, too.
I also like this almost penny stock as its non-cyclical operations means it can pay big dividends during good times and bad. Incidentally its yield sits a shade below 5% for this fiscal year (to March 2022). I think XPS is a top buy despite the problems that its acquisition-based growth strategy could throw up. Such problems could include the business ultimately overpaying to build its position in its fragmented marketplace.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Netflix. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.