Investing in penny stocks carries high risk, but also offers potentially spectacular rewards. These smaller growth shares can deliver excellent capital gains if profits take off. However, they can also sink quickly if trading conditions worsen, and can be prone to frequent share price volatility.

By focusing on companies with low valuations, investors enjoy a cushion that can limit price losses and volatility. But this isn’t the only advantage. Buying small-cap shares on the cheap can lead to especially large long-term returns as well.

With all this in mind, here are two penny stocks to consider this month.

Serabi Gold

Things haven’t been going the way of gold stocks more recently. Precious metals diggers have fallen across the board as prices of the commodity have sunk.

Junior gold miner Serabi Gold (LSE:SRB) is the exception to this trend, however. Its share price has continued rising despite the adverse impact of Donald Trump’s election victory on bullion values. And so it’s now 103% more expensive than it was at the start of 2024.

There’s no guarantee that it can continue defying gravity if gold plunges again. But at current prices the Brazilian miner is still worth a close look in my opinion.

It trades on a price-to-earnings (P/E) ratio of just 1.8 times for 2025. This makes it one of the cheapest gold producers currently listed on the London Stock Exchange.

Brokers expect earnings here to fly 63% next year, following on from a predicted 352% rise in 2024. City bullishness reflects the work Serabi’s undertaking to steadily increase production at its Coringa mine, eventually hitting 60,000 ounces a year by 2026. A bright outlook for gold prices also supports these forecasts.

I certainly think demand for the safe-haven metal could snap back given the worsening conflict in Eastern Europe, recent troubles in the fight against inflation, and concerns over US tariffs and how they may affect global growth.

Michelmersh Brick Holdings

Signs that inflation may be stickier for longer than expected is concerning for building materials suppliers like Michelmersh (LSE:MBH).

Sharply rising prices mean higher interest rates than usual, which in turn is bad for homes demand. This typically feeds through to lower housebuilding activity and weak demand for bricks.

Yet I still believe Michelmersh is an attractive stock to consider today. For one, it offers excellent value, with a P/E ratio of 10.7 times for 2025 and a price-to-earnings growth (PEG) multiple of 0.5.

I remain extremely bullish on the brickmaker’s long-term outlook as well. Rapid population growth in Britain means housebuilding will need to pick up strongly over the next decade. Under current government plans, some 1.5m homes will be built between now and 2029.

Michelmersh is well placed to capitalise on any construction boom, too. It has capacity of 125m bricks per year, and has a strong balance sheet (with net cash of £4.1m as of June) to embark on further acquisitions as opportunities arise.

With it also offering a tasty 4.8% dividend yield, I think the brickmaker’s a top value stock to consider.