Car retailer

Pendragon is one of the largest car retailers in the UK, operating close to 150 sites across the UK. It has deals in place with some of the biggest and best car manufacturers. These include BMW, Mercedes Benz, and Ferrari to mention a few. Its subsidiary, Pinewood Technologies, provides software-as-a-service (SaaS) solutions to the automotive industry, specifically dealer management software.

So what’s happening with Pendragon shares? As I write, they’re trading for 35p. Just two weeks ago, the shares shot up by 105%, from 17p to current levels.

Positive results and a new dawn

To start with, Pendragon released half-year results for the period ended 30 June 2023 that were impressive. Macroeconomic challenges, including soaring inflation and supply chain problems, have hampered many FTSE stocks. Despite this, the business managed to increase pre-tax profit by over 10% compared to the same period last year. Furthermore, revenue increased by 13% and it managed to boost its balance sheet with plenty of cash too. I’m usually buoyed when a business has boosted its balance sheet. This is because growth initiatives can be supported and investors can be rewarded.

The bigger news in my opinion is that Pendragon confirmed an offer from American business Lithia Motors for a strategic partnership. This offer is close to being accepted by the board. Lithia would purchase Pendragon’s motor retailing and leasing business for close to £400m as well as 24.5p per share to existing shareholders. In addition to this, Pendragon would become a pure play tech business through its Pinewood subsidiary. The business will continue to be listed on the FTSE under a new name. Furthermore, Lithia would inject £30m into this new business to help drive growth and boost market presence.

A FTSE stock I’m watching carefully

My view on Pendragon shares is generally bullish. However, I want to know more about the new business that will emerge before I do anything further.

What I do know is a bit about Pinewood’s position in the market at present. Pendragon’s SaaS business is often overlooked due to the strength and brand power of its retail car business. My research indicates Pinewood is one of the leading automotive SaaS businesses. Its dealer management software is extremely popular and trusted by over 50 brands in the car industry.

With its present popular and burgeoning product stack, as well as £30m investment from Lithia and the US exposure it will help provide, Pinewood, or whatever the new business will be called, could be set to soar to new heights.

For now, I’ve decided I’m going to keep a close eye on developments with Pendragon shares. Any FTSE stock that soars over 100% in a two-week period gets my attention. However, that doesn’t necessarily mean I’ll rush to buy the shares.

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Automotive retailer

Pendragon is the second-largest car retailer in the UK. It operates over 150 sites across the UK, where it represents over 20 different vehicle manufacturers. Some of these manufacturers include household names such as BMW, Mercedes Benz, Ferrari, Nissan, and many more.

Pendragon shares are currently trading for 22p, putting them in penny stock territory. At this time last year, the stock was trading for 19p, which is a 15% return over a 12-month period.

Risks to note

Despite my intention to buy Pendragon shares, I must note credible risks attached to them. The first issue is the fact there is a severe shortage of new cars available to sell. This is a direct result of a shortage of semiconductors, which are essential components to newer cars, especially electric vehicles (EVs). This lack of new cars could hamper performance and returns for Pendragon. I must note that due to this issue, the used car market is booming currently, which could somewhat offset this specific risk.

The next issue I must bear in mind is that of macroeconomic headwinds. Soaring inflation, the rising cost of materials, as well as supply chain constraints could hamper Pendragon. For example, rising costs and supply chain issues could impact profit margins, as well as day-to-day operations.

Why I would buy this penny stock

So let’s look at the positive aspects of Pendragon then. I believe the shares look excellent value for money currently on a price-to-earnings ratio of just four.

In addition to this, Pendragon has a decent track record of performance, although I am conscious that past performance is no guarantee of the future. Looking back, I can see its recent performance indicates that pandemic-related issues could be a thing of the past. Revenue and profit in 2020 were low due to the impact of Covid-19, but the following year, it managed to grow revenue and profit closer to pre-pandemic levels. I would expect performance to return closer to 2019 levels soon.

Lastly, I like Pendragon’s diversified business model as well as its brand power and profile. Through its many brands selling used, new, budget, and premium vehicles, it is able to derive revenue through many channels and geographical locations. Furthermore, it also has a separate parts business, as well as a company that focuses on automotive software solutions for the industry.

To summarise, I believe Pendragon is a penny stock that is being suppressed by current headwinds and volatility. With its diversified business model and presence, I believe it could be a great addition to my portfolio to provide long-term growth and returns. This is why I am planning on buying Pendragon shares imminently.

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Packing serious potential

Many engineering stocks like Mpac Group (LSE: MPAC) face significant uncertainty as the global economy deteriorates. But I think this business could fare much better than many in the current climate.

This is because Mpac designs and manufactures high-speed packaging and automation systems. With labour shortages worsening and staff costs increasing, demand for its services could be set to jump.

Indeed, a third of UK firms plan to invest more in automating their processes due to employee shortages, according to an HSBC survey of 670 companies published this week.

I think investors can expect Mpac’s profits to soar as the technological revolution rolls on. Analysts at Grand View Research also think the global robotic process automation market will expand at an incredible compound annual growth rate of 38.1% between now and 2030.

The flying dragon

Auto retailers such as Pendragon (LSE: PDG) aren’t just under threat from broader economic conditions. They also face the danger of new car shortages as car production rates stall.

In recent days, GM announced some 95,000 vehicles were sitting unfinished due to chip shortages. This is a problem affecting major motorbuilders all over the globe.

Yet despite these threats, I’m still considering buying Pendragon stock. I think the business could benefit enormously over the short term and beyond as environmental worries and soaring petrol and diesel costs supercharge demand for electric vehicles (EVs).

Latest data from the Society of Motor Manufacturers and Traders (SMMT) showed sales of battery-powered and pure hybrid vehicles in the UK continue to rise strongly despite the cost-of-living crisis. These were up 18% and 12% year-on-year respectively in May.

A top stock for tough times

Unfortunately the number of UK businesses going bust is tipped to soar as the economy tanks. It’s an environment in which FRP Advisory Services (LSE: FRP) could see demand for its operations explode.

In fact, the corporate restructuring expert is already witnessed a strong pick up in trade. Revenues jumped 21% in the 12 months to April. The business said it has seen the level of enquiries pick up in recent months due to rising economic headwinds and the removal of government support for businesses.

FRP also provides consultancy in the realm of mergers and acquisitions. Unfortunately, this is an area that could suffer in the short-to-medium term as economic conditions deteriorate.

Still, I think the firm’s expertise in several other areas more than offset this risk. As well as providing restructuring services, FRP also helps companies deal with debt, disputes and pensions issues. I expect it to thrive and this is reflected in its soaring share price.

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Pendragon

Car retailer Pendragon (LSE: PDG) has slumped in value recently as concerns over the cost of living crisis have mounted. In fact, recent action by online motor seller Cazoo illustrates the growing pressure facing these sorts of stocks.

On Tuesday, the business announced it was cutting 750 jobs, warning of a possible recession “in the coming months”. Investors in Pendragon need to be prepared for extreme sales pressure in the near term then.

That said, it’s my opinion that the penny stock’s rock-bottom valuation reflects this danger. At 57.8p per share, Pendragon trades on a forward P/E ratio of just 7.5 times.

As a long-term investor I think recent share price weakness represents an attractive dip-buying opportunity for me. This is because I believe Pendragon’s profits could soar over the longer term as demand for electric vehicles (EVs) takes off. Around 44% of Britons plan to buy an EV in the next 10 years, according to official data.

Shanta Gold

I believe too that investing in Shanta Gold (LSE: SHG) could be a good idea right now. I’m tipping precious metals prices to have a fresh run higher as inflation soars and global growth slows.

Many economists are becoming increasingly gloomy over conditions, a scenario that could supercharge demand for safe-haven gold again. The World Bank this week, for instance, slashed its 2022 global growth forecasts to 2.9% from 4.1% on account of “the war in Ukraine, lockdowns in China, supply chain disruptions and the risk of stagflation”.

There’s no guarantee that gold prices will rise in this climate. And this could cause profit forecasts at metal producers like Shanta Gold to slide. The World Gold Council says that gold-backed exchange-traded funds (ETFs) saw outflows of 53 tonnes in May. A possible resurgence in the US dollar is one threat to precious metals’ prices going forward.

However, on balance, I think gold demand could rise strongly. Inflationary looks set to remain higher for longer as the war in Ukraine drags on and broader supply chain issues endure. The World Bank also noted this week that “global inflation is expected to moderate next year but it will likely remain above inflation targets in many economies”.

I’d buy Shanta Gold, given the shaky economic backdrop. And I’d also add it to my portfolio because of the work it’s undertaking to supercharge production at its African assets. I think this could deliver excellent long-term returns. The penny stock remains on course to become a 100,000-ounce-a-year gold producer next year.

At 9.3p per share, Shanta Gold trades on an ultra-low forward P/E ratio of 8.2 times. Like Pendragon. I think it’s a brilliant bargain for me to load up on today.

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This week, Shell announced it plans to install an extra 50,000 EV chargers in the UK by 2030. This is in addition to the 50,000 it’s already promised by 2025. Such rollouts will be key in persuading drivers to trade their gas guzzlers in for EVs, easing concerns over range and ease of refuelling.

I like Pendragon in particular because of its large network of some 160 showrooms. Having a large physical presence is critical given that EV buyers tend to visit dealerships for advice before buying.

A low P/E ratio

Pendragon has warned of the threat of stock shortages due to weak car production rates. It’s a problem that threatens to last too as Covid-19 lockdowns in China come into effect and the supply of car parts remains tight.

Still, on the balance of things, I think the benefits of owning Pendragon shares offset the dangers. Moreover, at current prices of 24p per share the business offers the kind of value that’s hard to ignore.

Today, the penny stock trades on a forward price-to-earnings (P/E) ratio of just 7.9 times. Any reading below 10 times suggests that a stock looks cheap, based on profits forecasts.

A top share for tough times

Financial services provider FRP Advisory Group’s (LSE: FRP) another low-cost UK share I’d buy today. I think business activity here could soar as Britain’s economy grinds to a halt.

Bibby Financial Services has said that 2.1m small-to-medium-sized businesses are “just about” breaking even right now. Companies are suffering as the cost of living crisis and inflation hit profits and cashflow dries up.

Things look set to get worse for business before they get better too. The National Institute of Economic and Social Research now thinks the UK will tip into a technical recession later in 2022.

Expensive but exceptional

I am concerned by FRP Advisory’s slightly-toppy valuation. At 134p per share, the nearly penny stock trades on a forward P/E ratio of 22.6 times. Shares that command elevated readings are at a higher risk of selling off when profits forecasts come under pressure.

However, I think the colossal near-term opportunities it has still makes FRP a screaming buy right now.

FRP provides financial services (such as help with restructuring and raising capital) to companies that are in trouble. This means sales tend to strongly pick up during times of economic stress like today.

I also like FRP from a long-term perspective. Its market is highly fragmented and this provides excellent opportunities for acquisitions. The company has a strong track record on this front and kept the momentum going with its takeover of BridgeShield Asset Management Limited late last month.

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#1: Pendragon

The first company is Pendragon (LSE:PDG), an online new and used car retailer. It currently trades at 24.9p. 

Between 2020 and 2021, this business swung from a loss before tax of £25.5m to a profit before tax of £78.6m. 

This is encouraging and suggests that it has rebounded strongly from a tough time during the pandemic.

What’s more, revenue grew from £2.7bn to £3.4bn over the same period. 

Investment bank Berenberg increased its price target in March from 30p to 36p. This was chiefly because the 2021 results were slightly ahead of guidance. 

Despite this, there are potential future supply chain problems as the company emerges from the pandemic.

#2: Costain

Secondly, Costain (LSE:COST) is in prime penny stock territory. It’s currently trading at 42p and is a construction business. 

Between 2020 and 2021, this company narrowed its losses significantly. These shrank from £96.1m to just £13.3m.

In addition, revenue increased from £978m to £1.1bn. Furthermore, operating margins improved to -0.8% in 2021, up from -9.4% the previous year.

It should be noted, however, that past performance is not necessarily indicative of future performance.

With an order book of £3.4bn, the firm could be in great shape moving forward.

There are risks, however, with inflation and rising commodity costs potentially eating into future profit margins and impacting balance sheets.

#3: Pan African Resources

Finally, I’m looking closely at Pan African Resources (LSE:PAF), a gold-mining business operating in South Africa.

For the year ended June, between 2017 and 2021, profit before tax increased from £44.9m to £104m. In addition, revenue more than doubled from £125m to £368m over the same period.

Recently, the Sudanese government granted the company five exploration licenses. These cover an area of 1,100 square kilometres.

For the six months to 31 December, the company reported record gold production of 108,000 ounces and initiated a one-month share buyback scheme in April, worth £2.6m.

There’s always the possibility, however, that any future pandemic variant could halt production at the firm’s gold mines.

Overall, these three penny stocks could provide excellent growth opportunities. While there are risks associated with each company, I think their respective historical financial results are strong. What’s more, future operating environments for each firm look attractive over the long term. I will be buying shares in the companies soon.

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I don’t actually have to buy UK shares straight away though. Just putting my cash into my ISA before the end of the day is enough to utilise this year’s allowance.

However, I don’t see any reason for me to wait. I’m looking for the best penny stocks to buy before the markets close today.

There are plenty of quality penny stocks out there that I think are too good to miss. Here are a couple I think could deliver excellent returns.

Back of the net

The cost of living crisis is a danger to all retail stocks as consumer spending power falls. Fishing equipment specialist Angling Direct (LSE: ANG) is no exception. Though I’d argue that niche retailers like this are better placed to ride out the storm.

Angling is one of those passions for which spending tends to remain resilient during upturns and downturns. In fact I’m considering buying this penny stock given the pace at which the hobby is growing.

The number of anglers in the UK ballooned during Covid-19 lockdowns. Recent data from Statista suggests that there’s plenty more upside to come, too. It believes the European fishing equipment market will grow at an annualised rate of 6% to 2026 and be worth $2.9bn by then.

Angling Direct’s sales rose an extra 7.2% in the financial year to January 2022, continuing its recent strong momentum. And last month the business opened a distribution hub in The Netherlands to sell products across the European Union.

Another top penny stock

Sellers of expensive goods like car retailer Pendragon (LSE: PDG) are also in danger as inflationary pressures intensify. However, this is not the only danger as auto production problems persist.

Today the Society of Motor Manufacturers (SMMT) announced that new car registrations slumped 14.3% year-on-year in March. This was the worst result since 1998 and reflected the impact of “ongoing supply chain shortages” on car production.

The parts shortage issue has been exacerbated by the Covid-19 resurgence in China and the war in Ukraine. But despite these dangers, I’m still thinking of buying Pendragon shares. I think profits here could soar over the longer term as electric vehicle sales take off.

Riding the dragon

Even with that overall decline in March, the SMMT said that sales of these low-carbon vehicles exploded in March. Battery-powered vehicles for example soared 78.3% last month, with sales of 39,315 units representing an all-time monthly high. Tese figures illustrate the massive growth potential of this car class.

I for one expect EV sales to keep rising strongly as concerns over the climate worsen and charging infrastructure improves. Today Pendragon trades on a forward P/E ratio of just 9.2 times. I think this makes the penny stock too cheap for me to miss.

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That said, I think the long-term outlook for Ediston is highly attractive. And I’d use a 13% decline in its share price during the past month as a chance to buy it at a discount.

This property stock specialises in operating shopping parks, a part of the retail market which is performing strongly as e-commerce takes off. More specifically, Ediston’s properties have enough warehouse space and surrounding land to enable the business to ride soaring demand for ‘click & collect’ services from online shoppers.

Ediston’s share price is, despite heavy weakness more recently, up 12% over the past year. I expect the business to start to head higher again sooner rather than later.

Too cheap to miss?

Motor retailer Pendragon (LSE: PDH) could also suffer if shopper budgets continue to fall. It also faces some near-term peril as supply chain problems hit auto production and the prospect of stock shortages loom.

However, following recent share price weakness — Pendragon has just fallen to its cheapest since December — I think this penny stock could be too cheap for me to miss. Today, Pendragon trades on a rock-bottom price-to-earnings (P/E) ratio of just 6.8 times for 2022.

As a long-term investor, I think the car retailer has plenty of appeal. And I think it’s a great way to exploit rocketing demand for electric vehicles (EVs) in particular. Latest Society of Motor Manufacturers and Traders data shows sales of battery and hybrid vehicles leap 92.5% year-on-year in January. It’s a trend I expect to continue as fears over the climate crisis steadily increase.

Pendragon’s share price is up 46% during the past 12 months. I expect more robust increases over the long term as well.

Another top penny stock for the EV boom

I’d also snap up Phoenix Copper (LSE: PXC) shares to ride the EV revolution.

The red metal is a critical component in these low-emission vehicles, due its high connectivity. This is why analysts at ING Bank think copper loadings in cars and buses will likely leap to 3.2m tonnes a year from 440,000 tonnes in late 2021. They also believe copper demand in charging infrastructure will rise almost fivefold over the period, to 47 tonnes per annum.

Phoenix Copper, which owns the Empire metal mine in Idaho, should be well-placed to capitalise on rising copper consumption. That’s notwithstanding any revenues-hitting problems the business may encounter in developing its US asset.

Phoenix Copper’s share price has dropped 14% in the past week. This has eradicated all gains it has made over the prior 12 months. And, in my opinion, this makes the penny stock a highly attractive dip buy for me.

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Low-cost UK shares like these are often traded in large volumes because of their cheapness. This can result in huge share price volatility and an investor can see the value of their holdings vanish in the blink of an eye. The lion’s share of penny stocks are also pretty small — at least compared with most other listed companies — so the chances of failure can be higher when trading conditions worsen.

Why I like low-cost UK shares

Investors such as me need to be aware of these dangers. But, in my view, they don’t make penny stocks a sub-asset class to avoid. Like all UK shares they expose you and I to a higher level of risk than, say, investing in a bog-standard savings account. With some decent research though it’s possible to minimise the risk and separate the truly great stocks from the dangerous duds.

I like penny stocks because they often tend to be smaller companies that have plenty of room to grow. Sure, their business models and the markets in which they operate can often be highly untested. But if these companies get it right they can soar in value over a number of years and make their shareholders a fortune in the process.

US tech giant Apple is perhaps one of the most famous ex-penny stocks which has now taken on legendary status. As recently as 2009, the iPhone maker’s shares traded inside penny stock territory of below $5. Today, they change hands for $171.70 apiece.

3 penny stocks I’d buy right now

In this first of two articles I will reveal eight of what I consider to be the best British penny stocks to buy right now. Here are the first three low-cost stocks I’m considering snapping up for my own shares portfolio (look out for Part 2 of this analysis tomorrow).

Brickability Group

One way I’d seek to make money from the UK’s colossal homes shortage is to buy shares in Brickability Group (LSE: BRCK). The government will have to ramp up housebuilding activity over the next decade to meet strong and enduring buyer demand. I therefore expect profits at this brick-making penny stock to rise sharply.

Brickability is already making waves as housebuilders steadily ramp up their construction activity. Last month, the building materials supplier actually said trading was ahead of forecast for the year to March 2022. This follows news of “strong” order books across the business in December, and news that orders stood at record highs at Brickability’s roofing division.

Brickability doesn’t just make bricks. It also supplies doors, windows, flooring, and various other products that give it extra opportunities to capitalise on the homebuilding boom. And it has plenty of liquidity with which to boost its product ranges through acquisitions, a stage on which it has been active in recent times.

I like Brickability a lot, even though a downturn in the housing market is an ever-present threat. This could happen for example if the Bank of England raises interest rates sharply over the next couple of years.

Pendragon

Auto retailer Pendragon (LSE: PDG) could face revenue problems in the short-to-medium term if inflation continues to soar. Latest data from Barclaycard showed consumer card spending rose 7.4% in January versus the same month in 2020. This was the slowest rate of growth since April 2021.

Sellers of big-ticket items like new cars are particularly vulnerable when shopping budgets come under pressure. But I feel Pendragon’s used-car operations will help take the sting out of things. Cars remain essential commodities for many people and they will switch down to cheaper, pre-owned vehicles in tough times.

I like Pendragon because I think the number of electric vehicles (EVs) it sells will soar over the next decade. People are rapidly switching to these low-emissions vehicles on a combination of rising environmental concerns and increasing fuel costs. They’re tipped to keep rising in popularity too as they become cheaper to produce and, by extension, to buy as well.

The Climate Change Committee, an independent advisory body to the government, predicts there could be 18m EVs on British roads by 2030. That compares with the 400,000 or so right now. I think Pendragon’s one of the best-value penny stocks to capitalise on this booming industry. Today, the retailer trades on a forward price-to-earnings (P/E) ratio of below 7 times.

Atlantic Lithium

Metals miner Atlantic Lithium (LSE: ALL) is another penny stock whose profits could soar as EV sales balloon. The raw material it plans to pull from the ground in Ghana is widely used in the batteries that power these next-generation vehicles.

Mining for any natural resource is highly risky business. And it could be argued that Atlantic Lithium carries more risk than many others in the industry. Exploration work at its Ewoyya lithium project remains highly encouraging.

Indeed, progress on this front has lifted the share price 70% higher over the past year. But the business hasn’t actually pulled any of the material out of the ground yet. In the absence of any revenues it could be forced to take on more debt. It may even tap shareholders to continue its operations.

Still, it’s my opinion that Atlantic Lithium is worth the risk, given the rate at which lithium demand is tipped to boom. Analysts at Statista think annual worldwide lithium consumption will hit 1.79m tonnes by 2030. That’s up considerably from the 497,000 tonnes predicted for this year. The final figure could be even higher if lawmakers — many of which are straining to hit their climate targets — introduce fresh incentives to boost EV sales.

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Sellers of big-ticket items like Pendragon might also suffer as rocketing inflation smacks consumer confidence.

That said, I think Pendragon’s cheap price might still make it a great long-term buy today. At 21.6p per share, it trades on an ultra-low forward price-to-earnings (P/E) ratio of 6.5 times.

I’m minded to buy the penny stock as I think sales of its electric vehicles could soar as concerns over the climate emergency grow. The Society of Motor Manufacturers and Traders has previously guided that 300,000 new battery-powered vehicles could roll out of UK showrooms in 2022.

Protection from surging inflation

I think investing in some choice property good stocks could be a good idea too as inflation hits 30-year highs. Many UK companies face pressure from rising prices in some way, shape or form, whether that be through rising costs or falling consumer spending power. Property shares are a good hedge against this as rents tend to rise in line with inflation.

This is one of the reasons I’m considering buying Empiric Student Property (LSE: ESP). But it’s not the only one. Sure, the student accommodation specialist would take a hit if the Covid-19 crisis worsens and university attendances dive again. However, I think the long-term benefits of owning this share outweigh this more immediate danger.

Soaring numbers of overseas students is only increasing the shortage of student beds in Britain. This is steadily nudging rents up and property supply is tipped to continue lagging demand for years to come.

At 89p per share, Empiric Student Property trades on a forward price-to-earnings growth (PEG) ratio of just 0.2. This is well inside the widely-accepted bargain benchmark of 1 and below.

Another dirt-cheap penny stock!

Pub operator Marston’s (LSE: MARS) is another penny stock that could suffer if Covid-19 rates increase and lockdowns return. Investors already have to tolerate a big dollop of risk here as labour costs rise.

But it’s my opinion that recent share price weakness here represents a terrific buying opportunity for long-term investors. Today, the firm trades on a forward P/E ratio of 10.2 times.

I’m encouraged by news that sales here were bouncing back before Omicron emerged and fresh restrictions followed. Revenues were up 1.3% in the eight weeks to 27 November, Marston’s said last week.

Britons were spending more and more money on leisure activities like drinking and easting out before the Covid-19 emergency. Those fresh numbers suggest this positive trend remains in tact and could power profits at pub operators like Marston’s in the years ahead.

Today, the UK leisure share trades at 81p per share. I’m thinking it could be too cheap for me to miss.

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