Penny stocks trade below $5 and attract investors looking for high returns with a small initial investment. These stocks are often associated with small-cap and mid-cap companies, which have traditionally outperformed large-cap stocks due to their growth potential and higher risk. However, in recent years, these smaller firms have struggled to keep pace, as large-cap stocks—particularly major tech companies—have led market gains. A key factor behind this trend is the changing makeup of major stock indices. The broader market, heavily influenced by a handful of mega-cap stocks, has skewed overall market performance. If the so-called Magnificent Seven stocks were excluded, the wider market’s advantage over the small-cap Russell index would be significantly reduced. Historically, small-cap stocks have tended to outperform large caps following periods of market volatility.
At the end of December 2024, Fundstrat’s Tom Lee told CNBC that with the Fed cutting rates and a pro-business administration taking over, companies would likely see 2025 as a prime time for expansion, including mergers and acquisitions. He believes this will create a strong market for small and mid-cap stocks, with financials, cyclicals, and industrials benefiting the most. Lee also pointed out that Trump’s tariff policies and potential labor market disruptions from mass deportations could impact the stock market. Another risk is if the Fed focuses too much on inflation and weakens the labor market. On a different yet interesting note, he predicted Bitcoin could hit $250,000 in 2025, with Ethereum reaching $5,000-$6,000. He was also optimistic about Solana and other altcoins.
Similarly, Jill Carey Hall, who is BofA’s Head of US Small/Mid Cap Strategy, recently commented that financials and healthcare tend to see more mergers and acquisitions under Republican administrations, which could mean a strong market in 2025 if macro conditions stay favorable. She expects banks to benefit from a more relaxed regulatory environment, improving their margins and efficiency. While there is optimism around deregulation for small-cap stocks, she cautioned that in the recent past, they did not perform as well despite deregulation because their success was tied to tariffs, trade policies, and the manufacturing recession.
Further insights came from Chris Retzler, portfolio manager for Needham’s Small Cap Growth Fund, who shared his outlook for small-caps on CNBC’s Squawk Box on January 17, 2025. He noted that small-cap companies are looking for policy certainty, and once the new administration’s direction becomes clearer, we could see growth accelerate. Globally, the EV sector is thriving, even as it faces some hurdles in the United States.
Meanwhile, innovation in semiconductors, new materials, and infrastructure, especially data centers, is driving investment, creating opportunities for small caps as well. Retzler emphasized that if the government prioritizes American manufacturing, more infrastructure will be needed, benefiting small-cap stocks. He also highlighted the potential upside of moderate, well-implemented tariff policies and deregulation, which could boost M&A activity. When small caps are acquired and integrated into larger platforms, it helps recycle assets and reduce costs. IPOs may soon pick up, and Retzler sees a strong and optimistic market for small caps in the long run.
Gossamer Bio (GOSS): Among The Penny Stocks With Huge Upside Potential According To Analysts
A hand holding up a glass vial containing a biopharmaceutical therapy.
Our Methodology
We checked multiple reliable sources to find penny stocks with big catalysts and strong growth potential. To see what retail investors are buzzing about, we also looked through Reddit discussions. Then, we checked Wall Street analysts’ average upside predictions for these stocks. We have also included the number of hedge funds holding each stock as of Q4 2024. The list below ranks them in ascending order based on upside potential as of March 20.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Gossamer Bio, Inc. (NASDAQ:GOSS) is a California-based biopharmaceutical company focused on developing seralutinib, a potential treatment for pulmonary arterial hypertension. The company’s lead drug, GB002, is an inhaled therapy currently in Phase 3 clinical trials. It is one of the stocks with the biggest upside, ranking 4th on our list.
On March 18, H.C. Wainwright reaffirmed its Buy rating on Gossamer Bio, Inc. (NASDAQ:GOSS) with a $10 target, despite the stock trading at $1.39 after a 52.56% gain in six months. Analysts are optimistic about Gossamer’s drug seralutinib, an inhaled treatment being developed for lung diseases that cause high blood pressure (PAH and PH-ILD). Unlike other treatments that simply relax blood vessels, seralutinib works to repair them, which could make it a top-choice therapy and boost the company’s future success.
By the end of 2024, Gossamer Bio, Inc. (NASDAQ:GOSS) had $294.5 million in cash, enough to fund operations through mid-2027. R&D expenses rose to $36.1 million in Q4, up from $30 million in 2023, with annual costs reaching $138.5 million. G&A expenses saw a slight Q4 increase to $9.4 million but dropped annually to $36.1 million. Net loss improved significantly, falling to $33 million in Q4 from $48.1 million the previous year, with full-year losses dropping to $56.5 million from $179.8 million in 2023.
According to Insider Monkey’s fourth quarter database, 35 hedge funds reported owning stakes in Gossamer Bio, Inc. (NASDAQ:GOSS), compared to 28 funds in the last quarter. Octagon Capital Advisors was the largest stakeholder of the company, with 18.35 million shares valued at $16.6 million.
Overall, GOSS ranks 4th on our list of penny stocks with huge upside potential. While we acknowledge the potential of GOSS to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOSS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
