Penny stocks to buy have been the talk of the town in recent weeks as cyclical assets have started to make a comeback this year. Penny stocks tend to perform poorly during market downturns. The sell-off that began in late 2021 and the ensuing bear market in 2022 were not kind to penny stocks, as investors shied away from risk. But growth names have run hot in 2023, driven higher by hopes of looser monetary policy from the Federal Reserve. 

The appeal of penny stocks is their potential for outsized returns due to their small market capitalizations and cyclical nature. Small catalysts can generate enough excitement to propel these stocks substantially higher. 

Today, I will discuss three penny stocks to buy that have the fundamentals to continue performing well even in the event of a market downturn. I believe these stocks are too undervalued to decline much further and could offer investors multibagger returns.

Lineage Cell Therapeutics (LCTX)

Lineage Cell Therapeutics (NYSEAMERICAN:LCTX) is working to “pioneer a new branch of medicine based on transplanting specific cell types to patients with serious medical conditions,” according to the company. Its pipeline includes products based on its proprietary cell-based therapy platform to treat conditions ranging from spinal cord injuries to non-small cell lung cancer to hearing loss and some forms of blindness. 

Its most significant treatment is OpRegen for the treatment of dry age-related macular degeneration, a form of vision loss, which is in Phase 2 trials. There are currently no treatments for this disease, which was estimated to have a market size of $8.82 billion last year and is forecast to grow at a compound annual growth rate (CAGR) of 8.2% through 2030. Lineage entered into a partnership worth up to $670 million with Genentech in 2021 to develop and commercialize OpRegen.

Analysts rate LCTX stock a “strong buy” with an average 12-month target price of $5.25. That’s 275% above where shares currently trade. It’s ambitious, to be sure, but possible with positive trial results. 

CarParts.com (PRTS)

CarParts.com (NASDAQ:PRTS) is another penny stock worth looking into. As its name suggests, the company sells auto parts and accessories. Shares are down nearly 30% in the past year and nearly 70% in the past two. However, the stock has rebounded 29% since bottoming out in November, and I believe the risk-reward scenario is compelling at these levels.

Americans appear increasingly reluctant to purchase new vehicles amid a deteriorating macroeconomic picture and supply shortages. In 2022, the average age of vehicles on the roads in the United States hit 12.2 years, an all-time high and the fifth consecutive yearly increase. As older cars need more repairs, this trend presents a tailwind for CarParts.com. And the declining purchasing power of the average American household suggests this trend will persist. 

Even a market downturn shouldn’t have a meaningful impact on CarParts.com’s core business. Its three-year revenue growth rate of 15.9% is better than nearly 80% of the industry. I expect revenue growth to accelerate as the U.S. vehicle fleet continues to age.

Solid Power (SLDP)

Solid Power (NASDAQ:SLDP) may seem risky due to its ties with the electric vehicle (EV) market, but there’s a lot of potential here, even in the event of a market downturn. According to the company, its solid-state batteries offer higher energy density, lower cost and improved safety over conventional lithium-ion batteries. There are several tailwinds at play that make SLDP one of the top penny stocks to buy in the renewables sector.

The federal government wants half of new vehicles sold in the U.S. in 2030 to be electric. To this end, it has earmarked billions of dollars to build out EV battery charging infrastructure. It is offering billions more in EV incentives. As automakers rush to get more EVs on the market, there is huge demand for better EV batteries. Solid Power could wind up being a key supplier for major automakers like Ford (NYSE:F) and BMW (OTCMKTS:BMWYY), both of which have already partnered with the company.

Solid Power has already received millions of dollars in federal subsidies to support its research and development, and it could get more funding as it expands its production capacity and commercializes its products.

Finally, Solid Power’s three-year revenue growth rate is a blistering 69.4%, better than 98% of its peers. This growth rate comes with very little debt due to partnerships and subsidies.

On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.