10 Cheap Penny Stocks to Buy According to Hedge Funds

7. Clarivate (NYSE:CLVT)

Forward P/E Ratio as of March 11: 6.46

Share Price as of March 11: $4.33

Number of Hedge Fund Holders: 20

Clarivate (NYSE:CLVT) is a global information services provider that delivers critical data, analytics, and solutions across academia, government, life sciences, healthcare, and intellectual property. It operates through distinct segments and empowers organizations worldwide with resources that range from scientific research platforms and library management tools to patent and trademark services.

The company is shifting its Academic and Government (AMG) segment to a subscription-only model, with a focus on ProQuest ebooks and digital collections. This move will increase recurring revenue and improve predictability. By the end of 2025, one-time transactional sales of ebooks, digital collections, and print books will be phased out. This transition will increase the AMG portfolio’s recurring revenue to 90%. Through this step, the company expects to reduce volatile transactional revenue by ~$200 million. The company-wide recurring revenue mix is expected to rise from 80% to 87%.

Clarivate (NYSE:CLVT) is implementing its Value Creation Plan (VCP) to drive growth. This includes improving sales execution and accelerating product innovation through AI. The company is also streamlining its portfolio and recently completed the divestiture of ScholarOne and Valleypad.

Earlier last year, Cove Street Capital Small Cap Value Fund found Clarivate (NYSE:CLVT) as a strong investment opportunity because of its solid business model. Here’s what it said in its Q2 2024 investor letter:

“We also added a position in Clarivate Plc (NYSE:CLVT), a data services provider that operates across academic research, intellectual property, and life sciences. We came to the investment from cross-work in another holding, Research Solutions (ticker: RSSS). Ultimately this company sucks in data from participants in the industry, aggregates it, and provides value added services and tools back to those industry participants. The power is in providing customers access to the aggregate. This was a private equity roll-up of a bunch of different data assets that paid too little attention to product innovation, leading to a period of stagnating growth and repeatedly missing guidance. The business of selling many tools and services on a pile of fixed cost assets (data) remains tremendous as can be seen by Clarivate’s mid-to-high 30% EBITDA margins and strong returns on invested capital. With new management and board members in place and 18 months of an “investment cycle” under their belt, we view the risk/reward of CLVT to be favorable at these levels, with a strong upside case if they can reinvigorate growth to their target levels.”