What are car stocks?

Car shares can be defined as those companies operating in the automotive industry in some capacity. These include manufacturers, those supplying parts or technology such as seats, tyres and batteries, auto dealer groups and parts retailers. There really is a lot of choice for the nimble private investor.

What makes this sector particularly interesting is the differing levels of competition companies face. Some firms have a commanding presence in a niche part of the car market; others are forced to battle it out to attract consumers to their products and services.

Some businesses operate exclusively online; others adopt a more hybrid approach. Some have brands that are household names; others have no direct contact with the consumer and are only known by the most committed of car aficionados.

To really get a handle on just how diverse this space is, let’s look at a selection of five car shares listed on the London Stock Exchange by descending market capitalisation.

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Top car stocks in the UK

Auto Trader

Online marketplace Auto Trader has arguably become the go-to destination for anyone interested in buying a vehicle in the UK. This popularity has driven many investors to take position, pushing the company into the FTSE 100.

According to Auto Trader, consumers spend 7 times more minutes on its site compared to its nearest rival and over 75% of all time spent looking at classified advertisements of vehicles for sale.

The boom seen in car sales since the Covid-19 pandemic has only served to reassert this dominance. Back in November 2021, the company announced its highest ever six-monthly revenue and profits.

• Market Cap: £5.11bn (as of 12 May 2022)
• Average Daily Volume: 2,610,444
• HQ: Manchester

Aston Martin Lagonda Global Holdings

Aston Martin doesn’t need much in the way of an introduction. Regularly featured in the James Bond movies, the firm designs and produces some of the most luxurious cars in the world including the Vantage, DB11, DBX, DBS and Valkyrie. It then exports and sells these highly coveted vehicles in 55 countries around the world.

Unfortunately, this quality hasn’t been reflected in the performance of Aston Martin shares. Since listing in October 2018, the company has lost over 90% of its value due to concerns over its finances and pandemic-related headwinds.

Whether Aston Martin can recover remains to be seen. On an optimistic note, the recruitment of former Ferrari CEO Amedeo Felisa could prove to be a masterstroke. The latter’s share price has been on a tear in recent years.

• Market Cap: £803m (as of 12 May 2022)
• Average Daily Volume: 479,699
• HQ: Warwick

Halfords

As any car owner will know, regular maintenance of one’s vehicle is essential. This is where Halfords comes in.

From fluffy dice to child seats to engine oil, the company sells every conceivable product a driver might need for keeping their car in top condition and passengers safe.

In addition to this, the mid-cap also runs a huge estate of Autocentres, delivering services that every owner needs to factor into their running costs every year.

Halfords recently reported that this part of the business had grown like-for-like revenues by a little over 33% in the three months to the end of 2021. Following some recent acquisitions, it now expects to carry out 7.5 million motoring services jobs a year.

• Market Cap: £497m (as of 12 May 2022)
• Average Daily Volume: 636,969
• HQ: Redditch

Seeing Machines

The vast majority of UK investors are unlikely to know about Australia-based minnow Seeing Machines. However, this could be set to change as it rapidly becomes the biggest player in software and systems designed to monitor driver distraction and fatigue and, in doing so, reduce accidents on the road.

Although only currently available on the premium models, this tech is likely to become standard over time in accordance with legislation. Seeing Machines also makes money from having its Guardian tech fitted retrospectively to fleets.

But Seeing’s eye-tracking tech isn’t just limited to cars and trucks. The company also has its fingers in multiple pies including aviation and rail. This could further turbocharge growth in the years ahead.

• Market Cap: £276m (as of 12 May 2022)
• Average Daily Volume: 5,038,603
• HQ: Canberra, Australia

Lookers

Lookers is yet another way for UK investors to tap into car stocks. It is one of the largest automotive retailers around, selling 173,000 new and used vehicles in 2021 from 144 franchise dealerships. The small-cap also boasts an aftersales division, offering parts, servicing, MOT and accident repair.

Like some of the other stocks mentioned here, Lookers saw its share price soar since the pandemic as supply chain shortages held back production and increased demand for those cars already in existence. Revenue breached the £4bn mark and pre-tax profit hit £90m.

• Market Cap: £m (as of 12 May 2022)
• Average Daily Volume: 1,002,378
• HQ: Altrincham

Are car shares right for you?

The five car stocks mentioned above go some way to demonstrating the variety of opportunities available to UK investors in this space. This is not to say that they are necessarily right for everyone.

Depending on the time period used, there have certainly been some winners. Those investing in Auto Trader between March 2020 and the end of 2021 will have doubled their money. The share price of Seeing Machines also climbed from under 2p to 12p from March 2020 to August 2021. In sharp contrast, anyone holding Aston Martin will probably be nursing significant losses on paper.

One also needs to remember that demand for vehicles can depend on a huge range of factors that are beyond the control of these businesses. Tricky economic times can force people to postpone a new purchase, especially if there is nothing wrong with their existing vehicle. High fuel prices can also impact demand.

On a more positive note, some UK car stocks generate income for those holding them, which may help to take the sting out of any temporary fall in a company’s value. Naturally, these can never be guaranteed.

In summary, car shares certainly have the potential to generate great returns for those who are willing to take more risk with their cash. The gradual switch away from internal combustion engines to more environmentally friendly solutions, combined with lowering production costs and rising levels of affluence, could see even more investors pile into the space over the next few years.

However, the potential for significant volatility can’t be overstated. As such, a portfolio that also has exposure to other sectors makes Foolish sense.

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AI tech

Seeing Machines is a tech stock with operations primarily based in Australia. It specialises in designing, creating, and selling technology related to artificial intelligence (AI) that will reduce and prevent transport-related accidents. Its technology can be applied in the automotive, rail, aviation, and off-road sectors currently. It counts some major businesses as its customers already, including General Motors and Emirates Airlines.

So what’s the current state of play with Seeing Machine shares? Well, as I write, the shares are trading for 6p. At this time last year, the shares were trading for 10p, which is a 40% drop over a 12-month period. It is not uncommon to see penny stocks fluctuate up and down this much.

The Seeing Machines share price has dropped more so since the turn of the year due to the stock market correction. The correction is linked to macroeconomic headwinds and geopolitical issues.

A growth stock with risks

The biggest risk I must consider as a shareholder of Seeing Machines is that of competition. As with most penny stocks, there is a high likelihood that a larger, more established business in the sector could out-muscle and outmanoeuvre a smaller firm like Seeing Machines. AI-based technology is a growing market and many firms are vying for market share and dominance, some of which are bigger and better known with more financial clout.

Generally speaking, macroeconomic headwinds such as soaring inflation, the rising cost of raw materials and the global supply chain crisis are real threats to the progress of a growth stock like Seeing Machines.

Why I bought the shares

I always look at performance when deciding to buy shares for my holdings, although I do understand that past performance is not a guarantee of the future. Looking back, I can see Seeing Machines has increased revenue for the past four years in a row. It has consistently recorded a profit in each of these fiscal years too, even in the face of tough trading caused by the pandemic in the past 18 months.

Coming up to date, Seeing Machine released a half-year report at the end of March for the six months ended 31 December 2021. It reported revenue was up nearly 20% compared to the same period last year. Furthermore, it managed to conserve more cash and boosted its coffers by nearly 50%. Cash on a balance sheet is a big positive for me in any growth stock. This cash can steady the ship in uncertain times as well as fund growth initiatives.

At current levels, Seeing Machine shares are dirt-cheap, in my opinion. I paid 6p per share and purchased a total of 15 shares at a total cost of just over £1. I don’t see much risk here and if I lost all my money, it wouldn’t concern me too much.

My investing mantra has always been to buy and hold for the long term. I believe Seeing Machines could develop and grow into an AI leader and provide me excellent returns. I rate it as an exciting growth stock and will keep a keen eye on developments.

I would want to buy these soon or early in 2022 as they could offer lucrative returns over the longer term. As the year progresses, their prices could rise higher so I see an opportunity to get in early, while they are cheap and add them to my portfolio.

Definition and risk

Sometimes referred to as penny shares, these are stocks that trade with a share price below £1. The firms also have a market capitalisation of below £100m usually. In most cases, these firms are small, lower-valued businesses. Due to this, there is a higher element of risk involved. The reward can also be higher if things go to plan based on product and services offered and performance. 

It is worth noting some of the general risks associated with penny stocks. Firstly, there is usually scare information available about these firms, as they aren’t followed by many research analysts. I like to do lots of research and due diligence before I buy any shares. Often, these shares either simply don’t have enough information out there or it come from sources that I wouldn’t consider credible. This can be a red flag that puts me off.

Next, penny stocks can often have a lack of history due to the fact they are newly formed. I understand past performance is not a guarantee of the future but I review it as a gauge when reviewing investment viability.

Finally, these shares can often have a lack of liquidity meaning they have little cash for the business to invest into product launches, research and development, and other activities. Penny shares can often be victims of stock price manipulation too. This can happen when someone buys a large amount of stock, hypes it up, and then sells it after other investors find it attractive.

Penny stocks to buy #1

Seeing Machines (LSE:SEE) is a tech stock based in Australia. It specialises in artificial intelligence (AI) tech to help reduce transport-related accidents with real world applications. This tech is applied in automotive, rail, aviation, and off road sectors. Seeing Machines has a global presence already and can count some major names among its customers. These include Emirates Airlines and General Motors.

As I write, the Seeing Machines shares are trading for 11p. At this time last year, the shares were trading for 5p, which is a 120% return. I am a fan of tech stocks generally so when a penny stock is on my radar with new and exciting tech applications, I take a good look at it. So far Seeing Machines looks an exciting prospect for such a cheap price. It seems to be using technology to solve a real problem and save lives.

Seeing Machines released year-end results last week, which made for excellent reading. Revenue increased 18% compared to last year and profit increased by 44%. Net cash also increased, which will solidify its balance sheet. Operationally, it reported its tech was now implemented in further General Motor’s models and new strategic deals were close to being signed off with other manufacturers of transport modes. This will boost performance in 2022.

Seeing Machines also has a decent track record of performance. I can see that revenue and profit have been increasing year on year for the past four years.

All penny stocks have risks. Seeing Machines could be out-muscled by larger tech firms that might decide enter the same space, despite its good progress to date. Furthermore, share prices can be volatile for small caps. Seeing Machines is trading close to all-time highs, so any negative news could cause a major shock to the share price.

Overall I would happily add Seeing Machines shares to my portfolio for 2022. I believe it is an exciting company at a cheap price with some excellent fundamentals to date behind it. I wouldn’t be surprised to see the share price continue to climb in 2022.

Pick #2

Zephyr Energy (LSE:ZPHR) is an investment platform designed to undertake economically attractive gas and oil projects. It is designed to focus on developments in the Rocky Mountain region of the US. Zephyr was formed by individuals with lots of experience in the gas and oil industry. 

Part of my bullish stance on Zephyr stems from oil and gas demand. The demand for both is high right now and a small cap like Zephyr could capitalise. Oil demand may be declining in the very long term but for now there is lots of demand, especially as the world recovers from the pandemic.

As I write, shares in Zephyr are trading for just over 6p. A year ago shares were trading for less than a penny, at 0.63p. That equates to a return of over 800%. Penny stocks can often experience huge share price increases in a short space of time so I am not getting too excited.

This year has been a particularly fruitful one for Zephyr. A re-brand and new management team have renewed focus and strategy since 2020. It has also made significant drilling progress in some of its prominent sites, especially one in Utah for which it has a lot of expectations. At the site drilling operations had been completed, it hit primary and secondary targets, and there were signs of natural gases and oil. A further update since points to the finalisation of well design so things are looking good.

Zephyr does come with risks. Like Seeing Machines, it is a very small fish in a large pond and could easily be out muscled and outmanoeuvred by a larger firm if they entered the same space geographically. Finally, Zephyr’s progress is based on projections to date rather than tangible results, which is a credible threat to any investor returns.

Overall, for 6p per share, I would happily add a small amount of shares to my portfolio. I would expect the share price to rise in 2022 and beyond. I believe my investment could grow and offer me a return in the long term, especially if some current projects begin to yield tangible results by way of oil and gas.

However, this comes with a downside. Smaller companies can grow faster than larger corporations, but they are also riskier investments.

As such, I cannot take their growth for granted. So I will be keeping a close lookout for the challenges these businesses may face when I buy them. 

Penny stocks for growth

Seeing Machines (LSE: SSE) designs and produces driving safety technology. The £450m market capitalisation company is still in its early stages of growth. Revenues are expected to total A$47m this year.

However, sales have grown at a compound annual rate of 26% over the past six years. I think it is likely this trend will continue as organisations try and improve efficiency and digitisation.

Analysts appear to agree. Sales are projected to jump to nearly A$60m in 2022. 

Unfortunately, the group is still losing money. This is the most considerable risk involved with this stock. Losses have been funded over the past six years by issuing new shares diluting existing investors. With no sign of profits on the horizon, it seems likely the company will continue to ask investors for more cash. 

Despite this risk, I am attracted to the enterprise for its growth potential. 

Another penny stock I would buy for growth is aquaculture biotechnology company Benchmark Holdings (LSE: BMK). The group develops treatments for the aquaculture industry to help improve output and reduce wastage. 

As the world’s population continues to expand, food security is becoming a pressing issue. Therefore, it seems likely technology to help improve food production yield will continue to be a hot market. 

Benchmark’s established reputation in the sector, coupled with the group’s existing portfolio of products, puts it in a great position to capitalise on this trend, in my view. 

Challenges the enterprise could face include competition and regulation. These may weigh on growth if the firm has to hike spending to deal with additional regulatory requirements. 

Economic recovery

I think one of the best penny stocks in the oil and gas sector is Jadestone Energy (LSE: JSE). 

Over the past couple of years, the group has built a portfolio of oil and gas assets throughout the Asia-pacific region. It concentrates on cash generative, low-cost prospects. This strategy is now paying off thanks to higher oil prices. 

During the first half of 2021, the group generated $54m of cash from operations. It ended the period with net cash on the balance sheet of $48m. 

This cash provides further scope for expansion. It will also help support Jadestone’s dividend. The shares currently support a dividend yield of 1.6%, a rare quality among penny stocks. 

Unfortunately, as an oil producer, the price of this commodity dictates its fortunes. A fall in oil prices could have a significant impact on its bottom line. This is the leading risk I will be keeping an eye on going forward. 

Life-saving tech

SEE may not be familiar to a lot of readers so let’s have a quick recap. The Canberra-based, London-listed company is a specialist in eye-tracking. It creates tech for monitoring drivers’ level of alertness with the aim of reducing traffic-related accidents. The business has been around for over 20 years but it’s only now, thanks to new legislation and higher-spec vehicles, that the true opportunity is becoming apparent. This is, to some extent, borne out by today’s full-year numbers.

Revenues rise

This morning, Seeing Machines revealed an 18% rise in revenue to A$47.2m in the year to the end of June. The vast majority of this came from the company’s Aftermarket division where its Guardian tech is retrospectively fitted to fleets. The A$35.1m generated here was up 30% from last year.

All told, almost 32,000 vehicles had been fitted with Guardian by the end of June. And if the recent agreement with Royal Dutch Shell is anything to go by, I can see this number rising substantially in the years ahead.

Arguably the most important development over the last year, however, has been the start of OEM royalty licence revenue as cars begin to be fitted with its driver monitoring system (DMS) software. As things stand, nine models (roughly 120,000 cars) have this installed, including the new Mercedes Benz S-Class. It’s this part of the business that I think will eventually drive the share price a lot higher.

Can anything hold this penny stock back?

Absolutely. Even if it manages to avoid all general obstacles in its path (Covid-19, supply chain issues), progress won’t come cheap. Only yesterday, the company announced that it had raised US$41m to help it capture as big a share of the “rapidly expanding” driver monitoring system (DMS) market as possible. Such a move dilutes existing shareholders. It might not be the last time either.

Potential buyers like me also need to be comfortable with a volatile share price. A rise of almost 190% over the last five years masks the roller-coaster journey in the interim. The shares rose from below 3p in 2017 to 13p+ back in 2018. They then sank below 2p in March 2020 before recovering to just shy of 12p today. To be clear, an investment here is not for the faint of heart. 

Happy to hold

I’ve taken reasonable steps to avoid getting too dependent on Seeing Machines for growing my wealth. This includes being invested in more established businesses in a variety of industries and owning a number of quality-focused funds. To be clear, I’m not betting the farm on it. I never will. 

Notwithstanding this, the prospect of it revealing the full identities of its latest OEM customers in the months ahead could easily move its shares into a higher gear. And should the company succeed in capturing even a modest proportion of the opportunities in other sectors such as aviation, I think this could be one of the best penny stocks for me to buy more of for 2022.

Ringing endorsement for this penny stock

As deals go, this is top drawer stuff. Today, Seeing Machines announced a global framework agreement with top-tier oil giant Royal Dutch Shell to provide its distraction and fatigue tech — otherwise known as Guardian — to the latter’s fleet as part of its overall risk management plan.

Given that its workforce covers an estimated 500m kilometres every year (and what they are transporting tends to be rather flammable), this agreement makes clear sense from a safety perspective.

Naturally, it will take some time to fully implement this agreement. According to today’s statement, the installation of Seeing Machines’ tech is likely to begin this year. However, the sheer scale of Shell’s operations means the rollout might take “several years“.  

Still, an endorsement from Shell is hugely significant in my eyes. If you have one of the UK’s largest listed companies making it clear how much importance they place on driver safety, I think it’s fair to expect others to follow suit.

Naturally, it’s very easy to become biased on stocks one already owns. However, with the company being the global leader in this space, I do find it hard to be neutral on the outlook for this part of Seeing Machines’ business. 

Great outlook

Of course, today’s agreement is just one reason why I continue to hold the stock. Seeing Machines actually has its fingers in many pies at the moment. And, for me, the Guardian part of the business is actually the least exciting part.

The one that really grabs my attention is the huge earning potential of its automotive division. Back in August, the penny stock reported on the commencement of royalty revenues as over 100,000 vehicles loaded with its driver monitoring system (DMS) tech left showrooms. With the introduction of new legislation likely to boost demand, the company has already identified more than A$900m in potential revenue that it could/will now bid for.

On top of this, Seeing Machines has also been making moves into the aviation sector. This is the beauty of distraction-detecting tech — the sheer number of potential applications is hard to fully comprehend.

Long-term winner?

Naturally, any investment involves risk. Seeing Machines is no exception. Despite having a market cap of around £350m, this AIM-listed business is still unprofitable. This makes it particularly susceptible to general sell-offs. During the last market crash, for example, SEE’s share price fell from 5.5p in January 2020 to just 1.7p in March. It’s now at 9.8p, highlighting the huge volatility penny stock hunters should expect. One also can’t discount the possibility of future cash calls further down the line.

Along with would-be nickel miner Horizonte Minerals, however, Seeing Machines is one of few shares in my portfolio that I consider to be both very risky but also worth holding for the long term.

Time will tell if I’m fantastically right, utterly mistaken, or somewhere in between. For now, I’ll simply conclude that today’s news means I won’t be selling this penny stock anytime soon.  

FTSE AIM opportunity

Seeing Machines (LSE:SEE) is an Australia-based and headquartered technology business. It specialises in artificial intelligence (AI) technology to reduce transport related accidents with real world applications.

This safety technology is applied in automotive, rail, aviation and off road (mining) sectors. Seeing Machines is a growing firm and already has a footprint in Europe, North America, South America, the Middle East, and Asia. Some of its major clientele are big businesses. These include General Motors, Emirates Airlines, and Transport for London.

I am a fan of tech stocks generally and penny stocks in the technology sector excite me, especially when they are creating solutions to everyday problems. Seeing Machines is doing just that in my opinion with its mandate to reduce risk of accidents through tech.

As I write, shares are trading for just 10p per share. This time last year shares were trading for just 3p per share. In the space of a year the share price has more than tripled. I believe it could be a good, cheap opportunity for my portfolio right now.

Trading update

Seeing Machines released a FY21 trading update at the beginning of August. The bullish report caused a 25% hike in its share price.

SEE reported revenues were expected to be A$47.3m which is an 18% increase on the same period last year. In addition to this, cash at 30 June is approximately 24% ahead of market consensus at A$47.7m.

Seeing Machines said royalty revenues from its automotive divisions had begun to come in. This was due to more than 100,000 vehicles leaving showrooms equipped with its driver monitoring system (DMS). It also said its automotive pipeline could deliver potential revenue of over A$900m with increased driver safety regulations to be introduced worldwide. 

Penny stocks are also susceptible to being taken over by bigger firms. Automotive tech firm Veoneer, which operates in a similar space to Seeing Machines, was the subject of a $4.6bn takeover bid from US chipmaker Qualcomm. I believe this means that a firm like Seeing Machines could be taken over for a hefty sum in the future too.

Penny stocks are very risky

I do think Seeing Machines has excellent growth potential. It already has some excellent clients on its books and has some cash in the bank which is important for smaller firms.

The risks I must consider are that SEE is a very small fish in a large pond, which means it could be out muscled financially by larger firms. Penny stocks’ share prices are also very volatile and SEE could see its share price fall as it is trading at all-time highs. This could happen if there were a lack of new business wins or if there were a slowdown in economic growth.

Despite the risks, I would be willing to invest in Seeing Machines shares just now for my portfolio. I am aware of the risks but also aware of the potential upside involved. I would be happy to invest a small sum and keep an eye on developments.

I see no reason to bank my gains just yet. In fact, I’d be inclined to buy more.

Why is this penny stock motoring?

A recent, bullish trading update is one reason. On Tuesday, SEE said royalty revenues from its Automotive division had started as more than 100,000 vehicles left showrooms equipped with its Driver Monitoring System (DMS) tech. News of “significant growth” in its Aftermarket business (where SEE’s accident prevention products are installed in heavy vehicle fleets) was another plus.

All this allowed the firm to say it expected reported revenue for the year to the end of June to come in at A$47.3m. That’s up 18% from the previous year.

Importantly, the AIM-listed company now believes business will “increase sharply” over the next 2-3 years as new transport safety legislation kicks in. In fact, the mid-cap identified potential revenue of “over A$900m” from its automotive pipeline. A recent deal to install its tech into the Air Traffic Control environment (via Airservices Australia) also shows just how broad SEE’s markets might become in time.  

The second reason I think this penny stock is flying relates to last Thursday’s news that US chipmaker Qualcomm had made a $4.6bn bid for automotive tech firm Veoneer. A bidding war with rival Magna International may now ensue. This makes me even more confident that Seeing Machines will be snapped up for a tidy sum itself further down the road. 

Another false dawn?

As promising as I think this penny stock is, I need to be wary of bias when it comes to SEE. As a long-term holder, I’ve had my share of false dawns. From October 2017 to mid-June 2018, for example, the share price jumped 350%.

As tends to be the case with penny stocks, this rise couldn’t be sustained. A lack of news on contract wins, capital raises and the global pandemic led the shares to fall to below 2p in March 2020. 

Based on this performance, I wouldn’t rule out more volatility. Yes, having A$47.7m of cash at the end of June suggests SEE is a far less risky proposition than it was a few years ago. However, support could quickly disappear if markets wobble on news of a slowdown in economic growth.

Investors also need to be aware that talk of “new business wins” will only work in the company’s favour for so long. At some point, the market will need to see the evidence. There’s also a question mark over just how much of that A$900m pipeline SEE can really snag.

Multi-bagger potential

Notwithstanding these concerns, I think this penny stock is one that might trade for over a pound eventually. In fact, the huge growth opportunities for eye-tracking technology make me wonder if SEE’s share price could climb even higher than this already-lofty target.

By luck or skill (probably more of the former), I’ve been right on a few penny stocks in the past. While it’s always wise for me to maintain a diversified portfolio, I’m hoping this may be the case again here.

So I try to reduce the risk of investing in these businesses, which tend to be smaller companies, by owning a diversified portfolio. Of course, diversification doesn’t eliminate risk, but it could reduce the impact of a big disaster on my portfolio.

Penny stocks to buy

The first company I’d buy is Airtel Africa (LSE: AAF). I think two trends will dominate markets over the next five years or so. These are economic growth and tech disruption. 

Airtel, the owner and operator of mobile phone masts across Africa, could be a great way to invest in these trends. According to its full-year results for the fiscal year to the end of March, reported revenue grew by 14.2%. Meanwhile, reported operating profit increased 24.2%. In addition, the company’s overall customer base grew by 6.9% to 118.2m. 

Higher customer numbers helped the group’s top and bottom lines, but it also benefited from a significant increase in data revenue as its customers tapped into the digital economy. Data and mobile money revenue grew 24.3% and 29.1% respectively for the year. 

As the African economy grows and the world becomes more digitally connected, I think these trends will continue. That’s why I reckon this is one of the best penny stocks to buy right now. 

The key risks facing the business are competition and debt. It’s facing the former from several competitors across Africa. It also has a lot of the latter. This debt could hold back growth if interest rates suddenly increase and leave the group with a larger interest bill. 

Despite these risks and challenges I’d buy this company for my portfolio today.

Growth opportunity

Another company that features on my list of the best penny stocks to buy is Seeing Machines (LSE: SEE). This company specialises in computer vision technology that helps improve transport safety.

While it is still a relatively small business, Seeing Machines is growing rapidly. Underlying revenue growth using constant currencies was 19% year-on-year for the six months to the end of December. 

On top of this, the organisation expects its technology to be used in the production of 30 different car models over the next two calendar years. This suggests to me revenue could multiply in the years ahead. That’s why I think this is one of the best penny stocks to buy now. 

Despite this potential, the company is still losing money. It lost nearly A$17m in the six months to the end of December. That suggests an annualised loss of as much as A$34m. Moreover, the group had just $52m of cash at the end of the year, suggesting its funding is limited.

Despite this risk, I’d buy the stock from my portfolio, considering its growth potential over the next few years. 

While such a great result over such a short period is more based on luck than anything else, it does show how quickly small-cap shares can move upwards (although the reverse is also true). With this in mind, here are three more I’ve got my eye on. 

Seeing Machines

First on my list is Australia’s Seeing Machines (LSE: SEE). This AIM-listed company supplies systems that monitor drivers’ behaviour, thus reducing traffic accidents. 

Yesterday, Seeing announced that it had been appointed by another Tier 1 supplier to deliver its FOVIO tech to an additional North America-based OEM. Although only worth A$7m, this is another vote of confidence for the company. 

I’ve held SEE for many years now. While this hasn’t always been a comfortable ride, highlighting the risk involved, I haven’t sold and am now firmly in profit. The shares are up over 500% since markets around the world crashed. 

There’s no saying that the shares won’t dip again (there have been many ‘false dawns’), especially if investors continue to lose interest in tech stocks. However, given recent progress, I’d still buy at this level.

The Fulham Shore

A second UK penny share that warrants consideration in my view is The Fulham Shore (LSE: FUL).

Shares in the owner of Franco Manca and The Real Greek restaurants are now almost 250% above the low hit in March 2020. That’s a terrific result and shows the potential rewards of buying what everyone is selling in troubled times.

Based on last week’s trading update, I think there could be more to come.

Last Friday, Fulham Shore announced that sales in the week to 18 April had been “very encouraging“. In fact, they were ahead of the same week in 2019, far before the word ‘coronavirus’ was on everyone’s lips. Naturally, this performance was achieved without any indoor seating. No wonder management is interested in expanding the company’s estate!

Taking this into account, I’d be tempted to buy a slice of this UK penny share now. However, I certainly wouldn’t bet the farm. A third wave of the pandemic is still possible.

Brickability

A third stock trading for pennies (just!) is blocks and bricks manufacturer Brickability (LSE: BRCK). Like SEE and FUL, the shares have enjoyed a storming performance recently — up 160% in just over one year.

It’s not hard to see why. Earlier this month, Brickability said that it would reveal revenue of roughly £180m and adjusted EBITDA of more than £17m for the last financial year. This was ahead of previous expectations.

Looking ahead, BRCK believes that demand for housing should lead to another strong year of trading. Unfortunately, there’s no guarantee of this. Also, many of those already holding this UK penny share might begin taking profits, causing the shares to dip.

That said, BRCK still trades on less than 15 times forecast FY22 earnings. A price/earnings-to-growth ratio of 1.1 also suggests investors are getting a lot of bang (or brick) for their buck. I think there’s still time to build a position here.