Itâs true that cheap UK shares like penny stocks can be prone to extreme share price volatility. But this is not something that puts me off investing in such low-cost stocks. This is because I buy UK shares based on what returns I think Iâll make over the long term. Over this sort of timeframe any quality stock — regardless of the initial purchase price — has a great chance of rising strongly in value. Former US penny stock Apple is a perfect example of this.
With this in mind here are two top UK stocks on my radar today.
A top penny stock for the travel recovery
Airlines like Ryanair Holdings (LSE: RYA) arenât out of the woods just yet. Covid-19 infection rates continue to rise, after all. And travel restrictions in its European territories could remain in effect or possibly become even more restrictive.
However, the discussion of major changes to Britainâs travel rules by ministers today has improved the picture greatly for the business. As Iâve noted before, I believe Ryanair has enough financial strength to survive a prolonged period of tough travel regulations. But todayâs reports (if confirmed) mean seriously-good news for its near-term profits outlook.
Iâd buy Ryanair shares because of the bright outlook for the budget airline sector for the next decade at least. Itâs a market in which the Irish flyer will enjoy much-reduced competition following the Covid-19 crisis. And Ryanair is investing heavily to make the most of the opportunity. Yesterday it announced plans to carry 225m passengers a year by 2026. Thatâs up 25m from its prior target.
The main event
Arena Events Group (LSE: ARE) also faces significant danger given the recent resurgence in Covid-19 cases. But as things stand, current government regulations are allowing the entertainment sector to gradually get back on its feet.
And this is good news for this particular penny stock, one that provides large temporary structures like grandstands, fences and ice rinks (along with other items like catering facilities, bars and furniture) to leisure and sporting events. Like Ryanair, Arena Events Group also has strong financial reserves to fall back on in case a worsening coronavirus crisis affects its operations. In July it felt confident enough to pay back a loan from major shareholder Lombard Odier Investment Management early.
Renting out equipment for events is a highly-competitive industry. But Iâm encouraged by Arena Eventsâ good record of securing multi-year contracts with its clients to offset this problem. Indeed, in recent weeks itâs signed a deal to provide work for a division of golfâs PGA Tour until the middle of 2023. It also sealed âa multi-million pound contractâ to provide one of the venue clusters at the XXII Commonwealth Games in Birmingham in 2022. Like Ryanair, Iâd buy this penny stock today and aim to hold it for the long haul.