I’m on the hunt for top, low-cost UK shares to add to my shares portfolio in August. Here’s what I think could be one of the best ‘almost’ penny stocks for me to buy right now. It trades just above the £1 per share marker.
Battered buy-to-let
Buy-to-let used to be a lucrative investment class for UK investors. An ever-shrinking stock of family houses meant rents kept going up and up. Meanwhile, property prices ballooned, thanks to low interest rates and government support for first-time buyers. This allowed landlords to sell up for a fortune later down the line.
However, buy-to-let returns have taken a pasting in recent years, due to a raft of legislative changes. Amendments to tax rules, such as the end to tax relief on buy-to-let mortgage interest, have seriously whacked landlord profits.
Then the Tenant Fees Act transferred a raft of fixed costs from the tenant onto the shoulders of the property owner. Maintenance and regulation costs have also charged higher over the past few years.
At the same time though, rents have continued moving higher. A recent survey from HomeLet showed the average rent for a new tenancy in the UK rose to £1,029 per calendar month in July. That’s up a meaty 6.6% year-on-year. There’s still a chance to make decent money from the British property rentals market then. And I’d do this by snapping up ‘nearly’ penny stock PRS REIT (LSE: PRSR).
Why I’d buy this UK share
This UK share isn’t subject to the same profits-sapping crush as buy-to-let landlords. And what’s more, PRS REIT has the financial clout to make the most of this market through rapid expansion. The business just completed the construction of its 4,000th rental home. And it has roughly another 1,100 in the works.
As with all UK shares, this former penny stock isn’t without risk, of course. Possibly its most pressing problem is a shortage of building materials that could delay its construction plans and push up costs. It could also suffer significant worker shortages following the change to immigration rules post-Brexit.
According to the Office for National Statistics, the number of EU workers working on UK construction sites tanked 42% in 2020. This compares with the 4% drop among British-born workers.
A dirt-cheap ‘almost’ penny stock!
Still, at recent prices of 106p per share, I think PRS REIT could be considered too cheap to miss. City analysts think annual earnings here will rocket more than 220% in this fiscal year (to June 2022). This leaves the ‘almost’ penny stock trading on a forward price-to-earnings growth (PEG) ratio of 0.1. A reading below 1 suggests a stock could be undervalued by market makers.
In addition to this, at current prices, PRS REIT carries a 4% dividend yield for fiscal 2022. Compare this to the 3.1% average which the broader FTSE 100 currently boasts. All things considered, I think this is a top UK value stock for me to buy today and hold for years to come.