In this article, we will look at the 12 Best Long-Term Penny Stocks to Buy According to Hedge Funds.
What’s the Future Like for Small Cap Stocks in 2025?
On December 3rd, Bob Kaynor, CFA, Head of US Small & Midcap Equities at Schroders, provided a comprehensive outlook for small-cap stocks in 2025, emphasizing their potential as a cost-effective investment in the robust US economy. He mentioned that the economy has shown resilience post-pandemic, bolstered by fiscal stimulus from the Biden Administration through significant legislation like the CHIPS Act and the Inflation Reduction Act (IRA). This recovery is primarily driven by strong consumer spending and a favorable labor market. In this robust environment while large-cap equities may appear expensive and have likely priced in much of the anticipated growth, small and mid-cap stocks remain relatively undervalued. This presents an opportunity for investors to gain exposure to domestic economic strength without incurring high costs.
Kaynor identified several trends, which he believes could enhance the performance of small and mid-cap stocks in 2025. He pointed out that following a downturn in 2022 and 2023 due to recession fears and high valuations, M&A activity is now rebounding. This resurgence is expected to benefit small-cap stocks as they often become acquisition targets. Additionally, increased IPO activity can generate interest and optimism in the small-cap sector. Moreover, the ongoing and anticipated decline in interest rates starting late 2024 is expected to reduce borrowing costs for small-cap companies, which typically rely on short-term financing. This environment is historically favorable for small caps, particularly when inflation stabilizes between 1% and 3%. Kaynor also noted that the service sector of the market is expanding. The services sector not only forms a significant portion of the GDP but also favors small-cap companies primarily those operating within this space. Moreover, trends like reshoring are enabling small firms to become reliable suppliers for larger corporations. He expects that increased CapEx driven by automation and government support in sectors like semiconductors will likely correlate with revenue growth for small caps, further enhancing their investment appeal next year.
Kaynor noted that Wall Street analysts predict a substantial rebound in earnings for small caps beginning in late 2024, with expectations that their growth will outpace large caps throughout most of 2025. With that let’s take a look at the 12 best long-term penny stocks to buy according to hedge funds.
A closeup of investor hands holding a small-cap investment security.
Our Methodology
To curate the list of the 12 best long-term penny stocks to buy according to hedge funds, we used the Finviz stock screener and Seeking Alpha. Using the screener we got an initial list of penny stocks (trading under $5) with more than 20% 5-year sales growth. Next, we cross-checked each stock for 5-year sales growth from Seeking Alpha. Lastly, we ranked these stocks based on the number of hedge fund holders sourced from Insider Monkey’s Q3 2024 hedge funds database. Please note that the stock prices were recorded on December 31, 2024.
Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
12 Best Long-Term Penny Stocks to Buy According to Hedge Funds
12. Inter & Co, Inc. (NASDAQ:INTR)
Stock Price: $4.22
5-Year Sales Growth: 49.31%
Number of Hedge Fund Holders: 6
Inter & Co, Inc. (NASDAQ:INTR) is a Brazilian company that operates as a digital multi-service bank. It has created a global payments platform that allows individuals and businesses to manage their finances. It provides various digital financial services including loans and credits, investment and insurance, and international accounts. The company operates these services through a Super App where users can also shop online at various stores, book flights, and reserve hotels, integrating financial services with everyday shopping needs.
The company launched its strategic 60/30/30 plan in January 2023. The plan aims to achieve three major milestones by 2027, including the goal to reach 60 million clients, maintain a cost-to-income ratio of 30%, and achieve a return on equity of around 30%. Inter & Co, Inc. (NASDAQ:INTR) has been doing well so far in terms of delivering on its plan. During the fiscal third quarter of 2024, its customer base reached 34.9 million customers after an addition of 1.1 million net new active clients. As a result, its total payment value also grew 46% year-over-year to reach R$320 million (around $64 million).
Management noted that the growth and strong adherence to its strategic plan has been on the back of its differentiated super financial app, which the team continues to innovate. Inter & Co, Inc. (NASDAQ:INTR) launched a new digital payroll loan offer, enhanced the Pix finance experience, and expanded Inter Shop’s Buy Now Pay Later features during the quarter. As a result of these efforts it remains on track to achieve its goal for 2027, as not only did its client base grow, but it was also able to increase its ROE to 11.9%, up by 6.2 percentage points year-over-year. It is one of the best long-term penny stocks to buy according to hedge funds.
11. Custom Truck One Source, Inc. (NYSE:CTOS)
Stock Price: $4.81
5-Year Sales Growth: 47.82%
Number of Hedge Fund Holders: 8
Custom Truck One Source, Inc. (NYSE:CTOS) specializes in equipment and services primarily for industries involved in maintaining and building critical infrastructure, such as electric utilities, telecommunications, and railroads across North America. It operates in three main areas including Equipment Rental Solutions (ERS), Truck and Equipment Sales (TES), and Aftermarket Parts and Services (APS). It mainly serves utility companies, contractors, and other businesses that require reliable equipment for installing power lines, maintaining telecommunications networks, or managing rail systems.
While the storm hampered the growth of many other companies, it resulted in more demand for Custom Truck One Source, Inc.’s (NYSE:CTOS) services. During the fiscal third quarter of 2024, its ERS segment saw a sequential growth in rental revenue for the first time since last year, reflecting a 5% increase from the previous quarter. Management noted that storm-related work significantly contributed to this uptick in demand. It ended the quarter with over $1.2 billion in equipment on rent, which is a significant increase of $145 million compared to the previous quarter. Utilization rates have also improved, now exceeding 79%, indicating that more of their rental equipment is being used effectively.
Management anticipates that a rise in electricity demand due to AI and data centers presents a long-term growth opportunity for the company. Industry reports suggest a 24% to 29% increase in United States electricity demand by 2035. Currently, the company remains optimistic about delivering improved financial results and anticipates total revenue between $1.8 billion and $1.89 billion for 2024, with adjusted EBITDA projected between $340 million and $350 million. It is one of the best long-term stocks to buy according to hedge funds.
10. Plug Power Inc. (NASDAQ:PLUG)
Stock Price: $2.13
5-Year Sales Growth: 27.16%
Number of Hedge Fund Holders: 10
Plug Power Inc. (NASDAQ:PLUG) focuses on creating a complete green hydrogen ecosystem. It handles everything related to hydrogen energy, including its production, storage, delivery, and usage for generating power. Its key offerings include developing systems to generate hydrogen on-site using electrolyzers, creating fuel cells that replace traditional batteries in electric vehicles and equipment, and lastly it also offers solutions for data centers, providing backup or continuous power using hydrogen.
The company is differentiated because of its proton exchange membrane (PEM) electrolyzer technology. During the fiscal third quarter of 2024, Plug Power Inc. (NASDAQ:PLUG) deployed 70 megawatts of PEM electrolyzers, making it the largest provider of these systems globally. Currently, it is collaborating with companies like Galp and has plans to deploy the world’s largest PEM electrolyzer systems starting in April 2025. Additionally, it is also working on a 25-megawatt order for Iberdrola and BP at a refinery in Castellon, Spain. These projects demonstrate its capabilities to deliver large-scale hydrogen solutions internationally.
During the quarter, the company generated $173.7 million in revenue driven by strong demand for its electrolyzers and hydrogen infrastructure. Its quarter-over-quarter sales of electrolyzers increased by 285%, driven by a large-scale order and sales of 5MW systems. In addition, the company also improved its gross margins by 37% from the previous quarter, reflecting effective cash management and inventory optimization strategies. It is one of the best long-term penny stocks to buy according to hedge funds.
