12 Cheap Penny Stocks to Buy According to Hedge Funds
In this article, we discuss 12 cheap penny stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 5 Cheap Penny Stocks to Buy According to Hedge Funds.
A lot of investors find penny stocks, which are stocks with low share prices, to be attractive as they appear to be a good deal. In contrast to expensive stocks that may cost a substantial amount of money for just one share, penny stocks have prices that are below $5 and can be an appealing choice for individuals seeking to rapidly increase their earnings. Although investing in young companies with low valuations or discounted stock prices can lead to substantial returns, it is generally wiser to invest in larger, established companies with more stable and less speculative valuations. Typically, accomplished investors prioritize the possibility of their chosen stocks to increase in value over an extended period, without taking into account their initial cost.
In March 2021, Kate Rooney from CNBC investigated the reason behind the surge in the popularity of penny stocks due to discussions on Reddit. She noted that over-the-counter (OTC) markets were extremely popular during 2021, with OTC trading volume in February 2021 up 2000% as compared to the same period last year, exceeding $1.9 trillion in value. Penny stocks climbed dramatically on the back of retail interest in GameStop Corp. (NYSE:GME), the leader of the Reddit meme stock frenzy, DogeCoin, and NFTs.
Penny stocks have a significant presence in the market, with tens of millions of people trading them. While success rates may vary, small stocks have an established place in the market. One notable aspect of these stocks is their broad appeal, as they attract investors from diverse backgrounds. People of all experience levels, from beginners to experienced traders seeking to invest in promising up-and-coming companies, are involved in trading penny stocks. Some of the biggest companies today, including Apple Inc. (NASDAQ:AAPL), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Ford Motor Company (NYSE:F), once traded as penny stocks.
Our Methodology
We chose the top cheap penny stocks based on overall hedge fund sentiment, with P/E ratios of less than 15 as of March 29. These stocks are priced under $5. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the fourth quarter of 2022. The list is arranged in ascending order of the number of hedge fund holders in each firm.
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Cheap Penny Stocks to Buy According to Hedge Funds
12. Gerdau S.A. (NYSE:GGB)
Number of Hedge Fund Holders: 13
P/E Ratio as of March 29: 3.82
Gerdau S.A. (NYSE:GGB) is a steel producer in the Americas. The company operates through Brazil Business, North America Business, South America Business, and Special Steel Business divisions. The company was founded in 1901 and is based in S?o Paulo, Brazil. Gerdau S.A. (NYSE:GGB) paid a $0.0384 per share quarterly dividend on March 30.
On February 8, Goldman Sachs analyst Marcio Farid downgraded Gerdau S.A. (NYSE:GGB) to Neutral from Buy with a price target of R$31, down from R$38. Despite the stock's 8% increase after being added to the Buy list, it has outperformed the average LatAm steel peer by 35% and the LatAm materials sector by 16%. However, the analyst cautioned investors that weakening profitability in its core markets of the U.S. and Brazil, along with increasing capital expenditures, will restrict Gerdau S.A. (NYSE:GGB)’s capacity to distribute cash to shareholders.
According to Insider Monkey’s fourth quarter database, 13 hedge funds were bullish on Gerdau S.A. (NYSE:GGB), with collective stakes worth $375.6 million, compared to 15 funds in the prior quarter worth $200 million. Jon Bauer’s Contrarian Capital is the largest stakeholder of the company, with 18.5 million shares worth $102.7 million.
Like Apple Inc. (NASDAQ:AAPL), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Ford Motor Company (NYSE:F), Gerdau S.A. (NYSE:GGB) is one of the top stocks on the radar of smart investors.
11. Lufax Holding Ltd (NYSE:LU)
Number of Hedge Fund Holders: 17
P/E Ratio as of March 29: 3.69
Lufax Holding Ltd (NYSE:LU) is a Chinese company that runs a personal finance services platform utilizing technology. The company provides different types of loan products, such as unsecured and secured loans, as well as consumer finance loans. On March 15, Lufax Holding Ltd (NYSE:LU) declared a semiannual dividend of $0.05 per share, which is payable on April 21, to shareholders of record on April 7. It is one of the top cheap penny stocks to invest in.
Carson Lo, an analyst at HSBC, maintained a Buy rating on Lufax Holding Ltd (NYSE:LU) but reduced the price target on the shares to $3 from $4 on March 14. The analyst noted that Lufax Holding Ltd (NYSE:LU)’s expected recovery in the second half of 2023 is still valid, but it is anticipated to be more concentrated towards the end of Q4. This is due to a delay in the recognition of credit performance.
According to Insider Monkey’s fourth quarter database, 17 hedge funds were long Lufax Holding Ltd (NYSE:LU), compared to 14 funds in the prior quarter. Thomas Steyer’s Farallon Capital is the largest stakeholder of the company, with 38.4 million shares worth $74.5 million.
10. Olaplex Holdings, Inc. (NASDAQ:OLPX)
Number of Hedge Fund Holders: 17
P/E Ratio as of March 29: 11.45
Olaplex Holdings, Inc. (NASDAQ:OLPX) develops, manufactures, and markets hair care products. The company offers hair care shampoos and conditioners for use in treatment, maintenance, and protection of hair. It is one of the best cheap penny stocks that smart investors are piling into.
On March 16, Piper Sandler analyst Korinne Wolfmeyer maintained a Neutral rating on Olaplex Holdings, Inc. (NASDAQ:OLPX) and lowered the firm's price target on the shares to $4 from $5. A survey conducted by Piper of 231 Olaplex-certified stylists suggests that there is ongoing pressure in the firm's primary channel. The analyst noted that the company's expanded distribution has led to increased frustration among stylists, causing many to give up competing with larger retail companies. The firm also expressed little confidence in the management's margin targets for this year and does not anticipate any significant upside.
According to Insider Monkey’s fourth quarter database, 17 hedge funds were bullish on Olaplex Holdings, Inc. (NASDAQ:OLPX), compared to 18 funds in the prior quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the biggest stakeholder of the company, with 3.05 million shares worth approximately $16 million.
Polen Capital made the following comment about Olaplex Holdings, Inc. (NASDAQ:OLPX) in its Q4 2022 investor letter:
“Olaplex Holdings, Inc. (NASDAQ:OLPX) is a leader in the professional, luxury hair care and beauty products business. The company is a pioneer in science-based haircare, which is still in its early days compared to other parts of the luxury beauty market, like skincare. The company has built a dominant brand, delivering robust sales growth by leveraging salon relationships, word of mouth, and social media. We believe the business has a long runway of growth ahead driven by expanding distribution networks, deeper penetration amongst existing clients, and introducing new products. Olaplex is also a rare find among 2021 IPOs with strong profits, high free cash flow, impressive returns on capital, an experienced management team, and a long history as a private company and brand.”
9. Nokia Oyj (NYSE:NOK)
Number of Hedge Fund Holders: 17
P/E Ratio as of March 29: 5.89
Nokia Oyj (NYSE:NOK), a Finnish multinational company that provides mobile, fixed, and cloud network solutions worldwide, is one of the best cheap penny stocks on the radar of elite hedge funds. On March 27, Nokia Oyj (NYSE:NOK) announced an update to its AVA Energy efficiency software. The software now includes improved algorithms and power-saving measures that broaden its application to drive more significant reductions in network power consumption. The upgraded Nokia AVA Energy efficiency tool now empowers Communications Service Providers (CSPs) to lower energy usage in their data centers, as well as network base stations, batteries, and air conditioning units in telecommunications networks.
On February 14, Credit Suisse analyst Adithya Metuku maintained an Outperform rating on Nokia Oyj (NYSE:NOK) but lowered the firm's price target on the shares to EUR 5.61 from EUR 6.05.
According to Insider Monkey’s fourth quarter database, 17 hedge funds were long Nokia Oyj (NYSE:NOK), compared to 24 funds in the preceding quarter. Ben Levine, Andrew Manuel, and Stefan Renold’s LMR Partners is the largest stakeholder of the company, with 10.3 million shares worth $47.85 million.
8. Banco Santander, S.A. (NYSE:SAN)
Number of Hedge Fund Holders: 17
P/E Ratio as of March 29: 5.87
Banco Santander, S.A. (NYSE:SAN) offers retail and commercial banking products and services to individuals, small and medium-sized companies, and large enterprises worldwide. The company operates through Retail Banking, Santander Corporate & Investment Banking, Wealth Management & Insurance, and PagoNxt segments. It is one of the top cheap penny stocks to invest in. On February 2, Banco Santander, S.A. (NYSE:SAN) reported a Q4 GAAP EPS of €0.13, net interest income of €10.16 billion, and total income of €13.53 billion.
On March 22, Exane BNP Paribas revised its rating for Banco Santander, S.A. (NYSE:SAN) from Neutral to Outperform and set a price target of EUR 4.40. The firm’s decision was based on a more optimistic outlook for Brazil, which was deemed favorable for the upgrade. Additionally, Exane BNP Paribas believes that the market's estimates for Banco Santander, S.A. (NYSE:SAN) are overly pessimistic.
According to Insider Monkey’s fourth quarter database, 17 hedge funds were bullish on Banco Santander, S.A. (NYSE:SAN), compared to 12 funds in the prior quarter. John W. Rogers’ Ariel Investments is the largest stakeholder of the company, with 1.02 million shares worth $16.2 million.
7. Itaú Unibanco Holding S.A. (NYSE:ITUB)
Number of Hedge Fund Holders: 18
P/E Ratio as of March 29: 7.80
Itaú Unibanco Holding S.A. (NYSE:ITUB) offers a range of financial products and services to individuals and corporate customers in Brazil and internationally. The company operates through three segments – Retail Banking, Wholesale Banking, and Activities with the Market + Corporation. On March 23, Itaú Unibanco Holding S.A. (NYSE:ITUB) declared a $0.0374 per share dividend, which is payable on September 11 to shareholders of record on March 27. It is one of the best cheap penny stocks to watch.
On February 9, Grupo Santander analyst Henrique Navarro upgraded Itaú Unibanco Holding S.A. (NYSE:ITUB) to Outperform from Neutral with a $5.70 price target.
According to Insider Monkey’s fourth quarter database, 18 hedge funds were bullish on Itaú Unibanco Holding S.A. (NYSE:ITUB), compared to 16 funds in the earlier quarter. William B. Gray’s Orbis Investment Management is the largest stakeholder of the company, with 16.4 million shares worth $77.6 million.
Ariel Global Strategy made the following comment about Itaú Unibanco Holding S.A. (NYSE:ITUB) in its Q4 2022 investor letter:
“We initiated two new positions in the quarter. Macro-uncertainty also presented us with an opportunity to buy shares of Brazilian financial services company, Itaú Unibanco Holding S.A. (NYSE:ITUB). The company is led by a dynamic CEO, who is utilizing technology in the private banking sector as part of a broader move towards digitization. This strategy is not only reducing distribution costs, but is enabling the creation of new products in high market share areas such as private banking, credit cards, as well as small- and medium-size business lending. An attractive valuation, strong net interest margins and high return on equity are among the attributes motivating our purchase of shares.”
6. Ferroglobe PLC (NASDAQ:GSM)
Number of Hedge Fund Holders: 20
P/E Ratio as of March 29: 1.94
Ferroglobe PLC (NASDAQ:GSM) was incorporated in 2015 and is headquartered in London, the United Kingdom. Ferroglobe PLC (NASDAQ:GSM) is a company that works in silicon and specialized metals industries across the United States, Europe, and internationally. The company offers silicone chemicals that have a wide range of applications, such as personal care products, construction-related items, healthcare products, and electronics.
On February 27, B. Riley raised the firm's price target on Ferroglobe PLC (NASDAQ:GSM) to $11 from $10 and kept a Buy rating on the shares. The company had a strong performance in the fourth quarter, driven by energy and carbon compensation, the firm told investors in a research note.
According to Insider Monkey’s fourth quarter database, 20 hedge funds were bullish on Ferroglobe PLC (NASDAQ:GSM), compared to 24 funds in the prior quarter. Jeremy Hosking’s Hosking Partners is the biggest stakeholder of the company, with 5 million shares worth $19.4 million.
In addition to Apple Inc. (NASDAQ:AAPL), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Ford Motor Company (NYSE:F), Ferroglobe PLC (NASDAQ:GSM) is one of the best stocks to invest in.
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Disclosure: None. 12 Cheap Penny Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.