I have been looking for the best penny stocks to buy now for my portfolio. I want to add some small-cap stocks to my holdings because I believe these companies can achieve better growth rates than their larger peers.
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.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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