Key points
- Investing in UK stocks like penny stocks could be a good idea as inflation rises
- Gold stocks could thrive in an uncertain environment
- I also like real estate stocks, but I would avoid commercial real estate
Inflation continues to rise at an alarming rate. The Bank of England just predicted it could top 7% in the spring as energy costs rise. This presents a risk for many UK stocks, as it threatens to weigh on economic growth and drive up costs. But that doesn’t mean I’d rather put my money somewhere else, like in a savings account, even if interest rates go up.
I am with Hargreaves LansdownSarah Coles, Senior Personal Finance Analyst, on what we can expect. On the one hand, she says that “there is always hope that now profit margins have increased further rate hikes may persuade banks to raise rates further.” But she adds that “with so much cheap money lying around in these institutions, there is not much pressure for it yet.”
2 penny stocks I would buy as inflation soars
I won’t settle for low interest rates on savings accounts, especially when there are plenty of UK stocks that could actually thrive as global inflation rises.
Here are two penny stocks I’m thinking of buying right now. I think their profits could skyrocket as inflationary pressures increase.
get gold
Grabbing a gold-producing stock seems like a particularly good idea today. Indeed, this classic safe-haven asset tends to rise when inflation spikes and the value of paper currencies comes under scrutiny. Other factors could also push precious metals prices higher in the near term, such as the worsening Ukraine crisis and fears of a rapidly slowing Chinese economy.
I would buy Serabi Gold make the most of a long-term gold rush. Today, the penny stock trades on a forward P/E ratio of just 5 times. I think it’s a top buy despite the ever-present threat of mining difficulties that could affect earnings.
real estate power
Buying a property is another smart strategy, as rent growth tends to roughly keep up with inflation. Selecting a stock as a mall operator Land titles could be dangerous, however, as consumer spending is likely to take a big hit in times of runaway price increases. In other words, the number of its tenants going to the wall (or seeking rent reductions) could potentially increase. I would be happier to invest in Civitas social housing rather.
Homeowners like this can expect profits to remain strong even as household budgets come under pressure. We all need a place to live, right? I would buy this penny stock even though earnings may suffer if it fails to identify decent acquisition targets. Indeed, I think Civitas Social Housing could also be a brilliant long-term investment as Britain’s affordable housing shortage continues, yielding a sustained rise in rent levels.
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Wild Royston has no position in any of the stocks mentioned. The Motley Fool UK recommended Hargreaves Lansdown. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.