Motor retailers like penny stock Lookers (LSE: LOOK) face massive uncertainty due to disruption to auto production. This is affecting stock availability and news surrounding the issue remains pretty chilly.
A US government survey shows that semiconductor supplies dropped to an average of five days’ worth in late 2021. This is down considerably from the average of 40 days recorded in 2019.
With the Covid-19 crisis continuing, this threatens to be a prolonged problem for motor manufacturers too. Just three weeks into the new year, Toyota warned it would miss its 2022 production target and announced production stoppages in February.
Lookers said in early January that “it is right to remain cautious” given ongoing supply chain problems in the auto industry. But despite this threat, I think Lookers shares warrant serious attention at current prices. At 74.2p per share, this UK retail stock trades on a P/E ratio of just 6.5 times for 2022. Lookers also sports a meaty 4.4% dividend yield today, comfortably beating the 3.5% average for British stocks.
Not only does this valuation reflect the threat of those aforementioned car production problems, I believe it doesn’t factor in soaring demand for electric vehicles and the opportunities this creates for Lookers.
People are bringing forward their decision to purchase cars that produce lower emissions as their concerns over the environment grow. Data from the Society of Motor Manufacturers and Traders, for example, shows sale of battery-powered vehicles in Britain rocket 76.3% year-on-year in 2021.
Another cheap penny stock I’d buy today!
Photo-Me International (LSE: PHTM) is another penny stock I believe offers terrific value. The business — a giant in the field of self-service — trades on a P/E ratio of 9.3 times for this financial year (to October 2022). It currently trades at just 75.4p per share.
I believe the business could be a great buy for individuals who love robust dividend growth like me. Photo-Me didn’t pay a dividend in fiscal 2020 as the pandemic struck, and it’s unclear if one will be forked out for the financial year that’s just passed.
However, City brokers think a payout of 1p per share is set for this 12-month period, and that this will balloon to 2.1p in financial 2023. This leaves the company boasting handy yields of 1.3% and 2.8% for this year and next year respectively.
Photo-Me operates photo booths, laundry machines, digital printing stations and other self-service instruments. The business generates enormous amounts of cash — thanks in large part to its small labour costs — which explains why dividends are tipped to rise sharply.
The penny stock was recently subject to a takeover bid from its chief executive. The offer was required under UK trading rules however, following recent share purchases and a deal is unlikely. I consider Photo-Me to be a great buy despite the threat that pandemic restrictions in some territories pose to near-term profits. I’d buy it along with Lookers right now.
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Royston Wild 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.
