Penny stocks are the crack cocaine of the stock market. The chance of ludicrous returns, which can sometimes range in the thousands of percent, makes them irresistible for those with a high risk appetite. At the same time, they can be absolutely destructive if gambled without knowing the risks involved.
There are two sides to the penny stock debate. The good or the positive side loves to point out that some of the biggest companies in the world today were penny stocks in their early days. We've also taken a look at ten such stocks, to discover that this is indeed the case. Some of the most consequential companies today are in a diverse set of industries ranging from semiconductor fabrication to electric vehicles, consumer electronics, and electronic commerce. These firms include the world's largest contract chip manufacturer Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), the world's largest electric vehicle manufacturer Tesla, Inc. (NASDAQ:TSLA), and the world's largest electronic retailer Amazon.com, Inc. (NASDAQ:AMZN).
Lucrative right? After all, Amazon's shares are up by an unbelievable 139,122% since they first started trading and Tesla's stock is also up by a respectable 17,128%. Who doesn't want their dollar to be worth hundreds of thousands of dollars in a couple of decades after all? However, focusing on this data alone is nothing more than confirmation bias for those who keep on swearing about the miracles of penny stocks. Taking a broader look, there are more than ten thousand penny stocks - so you'll have to look really close to try and find the next Amazon, Tesla, or TSMC.
Not to mention, penny stocks are also at the center of some of the biggest scams on the stock market. One of the most notorious scams, which continues to this day despite being caught numerous times, is the good old pump and dump. This scam involves a group of individuals spreading hype about a little known firm, typically a penny stock, after buying it in bulk. Then, once enough people have been caught in the hype web and the price goes up, the scammers sell the stock in bulk to profit from their purchase while all others lose their money. Penny stock scams are also known for mob involvement. After all, selling drugs and running rackets isn't quite as lucrative as simply sitting on a computer and making a share price go up. In fact, one of the first pieces of legislation exclusively targeting penny stocks, the Penny Stock Reform Act of 1990, was in direct response to the mob's involvement in the stock market. The new laws were passed by Congress after a mob backed company, Laser Arms Corp, wowed the gullible by claiming to have invented the world's first self chilling can - an interesting idea since who doesn't want their beer to simply chill itself? However, the Securities and Exchange Commission (SEC) soon became the buzzkill as it filed a complaint and stated that not only did such a can not exist, but that Laser Arms appeared to have been created solely for the purpose of a pump and dump since it was incorporated a mere three months after it began selling its shares. Don't blame the general public for falling for it though. After all, it was the Wall Street Journal that ended up running advertisements for the firm that had claimed to be in business for three decades at the time of the scam.
Mob on Wall Street. Sounds nothing short of a thriller. Gang activity on the stock market grew in the 1990s as New York City picked up its efforts to cut mobs down to size. Yet, mobsters became innovative, as a New York Times report from 1997 shares:
The experts say that mobsters and their associates, especially younger ones, have searched for new criminal opportunities in recent years as many of the most powerful Mafia bosses have been sent to prison and the flow of loot from traditional rackets has dwindled.
So who knows, maybe your next big thing in the penny stock world is actually a front for the Mafia. There's a workaround to this, though. That workaround involves taking a look at what the professionals are doing. And that's exactly what we've done today, by analyzing what penny stocks billionaires are buying. Out of these, the top picks are iQIYI, Inc. (NASDAQ:IQ), Marqeta, Inc. (NASDAQ:MQ), and Lufax Holding Ltd (NYSE:LU).
To compile our list of penny stocks being bought by billionaires, we first ranked all stocks trading below $5 through their market capitalization. Then, as a first safety measure, only those whose shares were rated Buy or better were selected. Finally, these forty stocks were sorted through the number of billionaire investors in the first quarter of this year using Insider Monkey's proprietary database of billionaire-owned stocks. Out of these, the top ten penny stocks that billionaires are piling into are listed below.
Sirius XM Holdings Inc. (NASDAQ:SIRI) is an American entertainment company headquartered in New York. The firm operates a radio network and offers location based services.
By the end of this year's first quarter, 24 of the 943 hedge funds part of Insider Monkey's database had held a stake in Sirius XM Holdings Inc. (NASDAQ:SIRI). Out of these, the firm's largest shareholder is Stuart J. Zimmer's Zimmer Partners since it owns 12 million shares that are worth $49 million.
Sirius XM Holdings Inc. (NASDAQ:SIRI) joins Marqeta, Inc. (NASDAQ:MQ), iQIYI, Inc. (NASDAQ:IQ), and Lufax Holding Ltd (NYSE:LU) in our list of penny stocks being bought by billionaires.
Hudbay Minerals Inc. (NYSE:HBM) is another Canadian mining company. Headquartered in Toronto, Canada, the firm produces a wide variety of materials such as copper, zinc, and silver. It has mines in the U.S., Canada, and Peru.
Insider Monkey's first quarter of 2023 survey covering 943 hedge funds revealed that 25 had bought and owned a stake in the company. Hudbay Minerals Inc. (NYSE:HBM)'s largest hedge fund investor is Thomas E. Claugus's GMT Capital with a $161 million stake that comes courtesy of 30 million shares.
RLX Technology Inc. (NYSE:RLX) is a Chinese tobacco company headquartered in Beijing, China. RLX Technology Inc. (NYSE:RLX) sells electronic cigarettes and vaping products.
17 of the 943 hedge funds profiled by Insider Monkey for their March quarter of 2023 shareholdings had invested in RLX Technology Inc. (NYSE:RLX). The firm's largest investor is Liu Xuan's Keystone Investors since it owns 20 million shares that are worth $58 million.
Grab Holdings Limited (NASDAQ:GRAB) is a Singaporean technology firm. It is a software company that runs a unified platform offering a variety of different services to its users. These range from the ability to utilize financial products, to move around their cities. It has operations in several cities.
Grab Holdings Limited (NASDAQ:GRAB) is one of the more popular firms on our list since 32 hedge funds have bought the firm's shares as of March 2023. Out of these, the biggest investor is Stephen Mildenhall's Contrarius Investment Management since it owns an $89 million stake.
Ambev S.A. (NYSE:ABEV) is one of the largest beverage companies in the world. It is known for its alcoholic beverages such as different kinds of beer including the well known Bud Light and Budweiser brands. Ambev S.A. (NYSE:ABEV) also sells non alcoholic beverages.
After digging through 943 hedge funds for their Q1 2023 portfolios, Insider Monkey discovered that 14 had held a stake in Ambev S.A. (NYSE:ABEV). Its largest shareholder is Jean-Marie Eveillard's First Eagle Investment Management with a $877 million investment.
iQIYI, Inc. (NASDAQ:IQ), Ambev S.A. (NYSE:ABEV), Marqeta, Inc. (NASDAQ:MQ), and Lufax Holding Ltd (NYSE:LU) are some favorite penny stocks of billionaires.
