Despite common belief, not all penny stocks are inherently risky and suitable only for short-term gains. Some penny stocks possess strong fundamentals, making them potential candidates for long-term investment due to robust growth metrics. The most valuable stock in the stock market, Apple Inc. (AAPL), was a penny stock at one point about 25 years ago when there were doubts about its survival. Hedge funds are increasingly diversifying their portfolios by including low-priced stocks with decent market capitalization, sustainable annual earnings growth, and favorable price-to-earnings ratios.
In the ever-changing investment landscape, penny stocks have always appealed to thrill-seekers, offering low prices, high volatility, and the potential for substantial gains. These low-cap stocks are known for their high-risk, high-reward nature, promising significant returns at times.
Over the years, penny stocks have enabled investors and hedge funds to target higher gains than the market average. Some of the best-performing stocks in this sector align with industry trends and demonstrate resilience in challenging economic conditions. However, investing in penny stocks involves companies with small market capitalization and limited liquidity, resulting in higher investment risks compared to other stock types.
The recent interest in penny stocks is driven by escalating valuations in equity markets. The surge in high-growth technology stocks in 2023, fueled by the artificial intelligence frenzy, has seen the S&P 500 rise by more than 21%, with the tech-heavy NASDAQ poised for gains exceeding 35%.
Given the current high valuations of many high-growth large-cap stocks, now may be an opportune time to consider penny stocks trading at discounted valuations with significant upside potential. Hedge funds are increasingly investing in smaller or emerging companies with game-changing technologies, products, and solutions.
Growing expectations that the US Federal Reserve will start cutting interest rates in the first half of next year is offering support for investing in riskier assets like penny stocks. The Russell 2000 index that tracks some of the smallest cap stocks is already up by about 7% amid the high-interest rates, underperforming the S&P 500. However, with interest rates going down, the index could receive a boost on small caps and penny stocks exploding.
Hedge Funds Say These Penny Stocks are Poised to Explode
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Goldman Sachs is one of the significant investment firms that have already set sights on small-cap stocks heading into 2024 with the launch of a small-cap product. The launch underscores growing optimism about small-cap stocks as the focus shifts from high-growth stocks whose valuations remain overstretched.
In conclusion, penny stocks will continue to be an attractive investment option for investors seeking exposure to rapidly expanding companies. With thousands of penny stocks available, identifying those representing honest companies poised for substantial returns is challenging. A reliable approach involves following the actions of hedge funds and the penny stocks they are investing in. Unlike regular investors, hedge funds conduct thorough due diligence before making substantial investments in this highly volatile sector. Emulating their selections provides a prudent approach to navigating the risks and potential profits of penny stocks.
Our Methodology
Following hedge funds' moves in low-priced stocks can help individual investors earn high returns. Consequently, we have analyzed 13F filings and settled on some of the top penny stocks hedge funds invest in and pile into to gain exposure to emerging and burgeoning sectors. The stocks are ranked chronologically based on their upside potential from current levels.
Hedge Funds Say These Penny Stocks Are Poised to Explode
The Woodlands, Texas-based TETRA Technologies, Inc. (NYSE:TTI) is a penny stock for anyone eyeing exposure in the energy sector through a discounted stock. TETRA Technologies, Inc. (NYSE:TTI) operates an energy services and solutions company that manufactures and markets clear brine fluids additives and associated products and services to the oil and gas industry.
In a year when the energy sector has been on a roll, penny stocks have gained 28%, affirming why they are one of the penny stocks hedge funds that expect to explode. Likewise, TETRA Technologies, Inc. (NYSE:TTI) boasts of a Buy rating on the Street with an $8.50 price target implying 90% upside potential.
Out of 910 hedge funds in Insider Monkey’s database, 25 invested in TETRA Technologies, Inc. (NYSE:TTI) by Q3 2023. Out of these, the biggest shareholder is Jeffrey Gendell’s Tontine Asset Management since it owns 5 million shares worth $31.90 million.
Mereo BioPharma Group plc (NASDAQ:MREO) makes and sells drugs for cancer and other conditions. Mereo BioPharma Group plc (NASDAQ:MREO)’s lead product is etigilimab (OMP-313M32), an antibody T-cell immunoreceptor with IGO and ITIM domains, which is in Phase 1b clinical trial for treating tumors.
Mereo BioPharma Group plc (NASDAQ:MREO) is one of the penny stocks that is already exploding, going by a 178% year-to-date gain. Analysts on Wall Street expect the rally to continue in 2024, going by the Buy rating and a $4 price target, implying a 91% upside rally from current levels.
Hedge fund sentiment around Mereo BioPharma Group plc (NASDAQ:MREO) has increased in the third quarter of 2023. At the end of the third quarter of 2023, 16 hedge funds in the Insider Monkey database held stakes in Mereo BioPharma Group plc (NASDAQ:MREO), compared to 15 in the preceding quarter.
Oncology Institute, Inc. (NASDAQ:TOI) is a penny stock that offers exposure to medical oncology services in the US. The oncology company operates through three segments: Dispensary, Patient Services, and Clinical Trials & others, and specializes in offering physician services, in-house infusion and dispensary, clinical trial services, radiation, outpatient blood product transfusions, and patient support services.
Despite the penny stock decreasing 25% for the year, hedge funds believe it is poised to explode. Supporting the expectations is that Oncology Institute, Inc. (NASDAQ:TOI) boasts a $2.50 share price target that implies a $100% upside potential from current levels.
A total of 13 hedge funds out of the 910 tracked by Insider Monkey are holding a stake in Oncology Institute, Inc. (NASDAQ:TOI) during Q3, having a total value of $7.76 million.
Talkspace, Inc. (NASDAQ:TALK) is a health information services company that offers psychotherapy and psychiatry services for individuals, enterprises, and health plans. Talkspace, Inc. (NASDAQ:TALK) provides text, audio, and video-based psychotherapy from licensed therapists. It also gives Talkspace for Business employees access to its platform services on a benefit plan paid by the employer.
Talkspace, Inc. (NASDAQ:TALK) has been on the move for the better part of the year, rallying 273% year to date. Likewise, analysts expect the rally to continue in 2024, going by a Buy rating and a $5 price target, implying a 119% upside potential from current levels.
As of Q3 2023, 19 hedge funds tracked by Insider Monkey have positions in Talkspace, Inc. (NASDAQ:TALK), valued at $42.54 million, up from 18 in the previous quarter, totaling $29.03 million.
Rockville, Maryland-based MaxCyte, Inc. (NASDAQ:MXCT) is a life sciences company that discovers, develops, and commercializes next-generation cell therapies. MaxCyte, Inc. (NASDAQ:MXCT)’s products include ExPERT ATx, a static electroporation instrument for small to medium-scale transfection, and ExPERT STx, a flow electroporation for protein production and drug development.
Despite MaxCyte, Inc. (NASDAQ:MXCT) going down 10% for the year, analysts on Wall Street insist it is a Buy with an $11.26 price target, implying a 129% upside potential.
According to Insider Monkey’s data, 18 hedge funds were long MaxCyte, Inc. (NASDAQ:MXCT) at the end of Q3 2023, compared to 14 funds in the prior quarter.
