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.
9. Borr Drilling Limited (NYSE:BORR)
Stock Price: $3.90
5-Year Sales Growth: 26.86%
Number of Hedge Fund Holders: 10
Borr Drilling Limited (NYSE:BORR) is an offshore drilling company that particularly focuses on shallow waters, which means they operate in areas where the water depth is up to about 400 feet. It owns and operates jack-up rigs, which are floating platforms that can be raised above the water level for drilling operations. The company currently owns 22 rigs and is in the process of acquiring two more.
During the fiscal third quarter of 2024, Borr Drilling Limited (NYSE:BORR) reported significant developments. It secured contract extensions for several rigs, including Mist, Prospector 1, and Hild. The company noted healthy utilization levels for modern rigs and maintained rates above 94%, despite some regional softness in Asia and the Middle East due to aggressive competition for contracts. However, despite a healthy utilization rate, its revenue decreased by $30.3 million compared to Q2 2024. Management noted that the decline was due to one-off events in the last quarter, including $17.5 million from the termination of the Rig Arabia contract and $10.6 million related to changes in the operating structure of its Mexican joint ventures.
Borr Drilling Limited (NYSE:BORR) anticipates that demand for jack-up rigs will remain strong, supported by stable Brent crude prices above $70 per barrel, making shallow-water projects economically viable. Management also noted that the company will enter 2025 with nearly 80% of its fleet contracted at an average day rate of $148,000 per day, providing strong revenue visibility.
8. Cronos Group Inc. (NASDAQ:CRON)
Stock Price: $2.02
5-Year Sales Growth: 39.66%
Number of Hedge Fund Holders: 13
Cronos Group Inc. (NASDAQ:CRON) is a Canadian company that specializes in cannabis and cannabinoid products. It grows cannabis and produces various cannabis-derived products, which are marketed for both medical use and recreational purposes. The company operates through a diverse brand portfolio including Spinach, PEACE NATURALS, and Lord Jones.
One of the key competitive edges of the company is its association with the tobacco industry giant Altria Group, which maintains a 41% stake in the company. Moreover, Spinach has become the leading cannabis brand in Canada with a 4.8% market share, excelling in the edible and flower categories. Their innovative products, such as SOURZ edibles, have captured a significant portion of the market. In its fiscal third-quarter, the company has experienced a rise in demand for its cannabis flower products, particularly in Canada and Israel. To support the rising demand, Cronos Group Inc. (NASDAQ:CRON) is investing approximately $51 million into expanding GrowCo’s (a component specifically focused on cannabis cultivation) production facilities. This expansion will allow them to consolidate GrowCo’s results into their financials, providing a clearer picture of their overall performance.
During the fiscal third quarter of 2024, the company reported consolidated net revenue of $34.3 million, marking a 38% increase compared to the same period last year. Management attributed growth to higher sales of cannabis flower extracts in Canada and increased flower sales in Israel and other international markets, including Australia, Germany, and the UK. The company has also been focused on reducing its expenses; it aims to save between $5 million to $10 million on a stand-alone basis by 2024.
7. SelectQuote, Inc. (NYSE:SLQT)
Stock Price: $3.72
5-Year Sales Growth: 34.42%
Number of Hedge Fund Holders: 13
SelectQuote, Inc. (NYSE:SLQT) ranks 7th on our list of best long-term penny stocks to buy according to hedge funds. It is an insurance and healthcare services company. The company uses technology to connect consumers directly with insurance products, allowing them to compare options from multiple providers easily. It operates through a series of business lines including SelectQuote Senior, SelectQuote Healthcare Services, SelectQuote Life, and SelectQuote Auto and Home.
The company has implemented highly targeted lead-sourcing strategies for policy origination, which have proven effective during the Annual Enrollment Period (AEP). This approach is critical as SelectQuote aims to optimize cash flow and improve its balance sheet. Moreover, it is also leveraging AI tools to enhance operational efficiency by screening and prioritizing calls, thus simplifying processes behind the scenes. These effective marketing strategies resulted in a 26% year-over-year increase in revenue, totaling $292.3 million for the first quarter of fiscal 2025, up from $232.7 million in the same period last year.
In addition to revenue, the company also improved its adjusted EBITDA by reducing the loss by nearly $10 million, from negative $11.4 million last year to negative $1.7 million during the current fiscal year. On the bright side, its healthcare segment saw membership grow by 64%, reaching over 86,000 members. This segment has now recorded six consecutive quarters of profitability, demonstrating strong operational execution. Management anticipates continued success driven by its strategic initiatives in both Senior distribution and Healthcare Services.
6. Bitfarms Ltd. (NASDAQ:BITF)
Stock Price: $1.49
5-Year Sales Growth: 47.13%
Number of Hedge Fund Holders: 14
Bitfarms Ltd. (NASDAQ:BITF) is a Canadian company that specializes in bitcoin mining. It operates large facilities filled with specialized computers (called miners) that work around the clock to solve complex mathematical problems. The company has 11 operational data centers located in four countries, including Canada, the United States, Paraguay, and Argentina. It generates revenue by selling the computational power generated by miners to mining pools, where they earn Bitcoin based on their contribution to the pool’s total output.
Over the past year, Bitfarms Ltd. (NASDAQ:BITF) has undergone significant changes and upgrades to enhance its Bitcoin mining operations. By the end of its fiscal third quarter of 2024, it had upgraded 10 existing data centers and added 3 new ones. They have replaced over 50,000 older miners with about 46,000 new, more efficient miners. The company’s operational hash rate has surged by 83%, reaching 11.9 exahash per second (EH/s), which is a measure of mining power.
Moreover, in August the company announced the acquisition of Stronghold Digital Mining, marking a significant move in the bitcoin mining sector. This acquisition includes two power facilities in Pennsylvania, which will add over 300 MW of power capacity to their operations. During the fiscal third quarter of 2024, Bitfarms Ltd. (NASDAQ:BITF) reported revenue of $45 million, representing an 8% increase quarter-over-quarter and a 30% increase year-over-year. It is one of the best long-term penny stocks to buy according to hedge funds.
5. Tilray Brands, Inc. (NASDAQ:TLRY)
Stock Price: $1.33
5-Year Sales Growth: 25.65%
Number of Hedge Fund Holders: 16
Tilray Brands, Inc. (NASDAQ:TLRY) is a diverse company that operates in several areas related to cannabis and consumer products. It operates through four main business segments including Cannabis, Distribution, Beverage Alcohol, and Wellness products. In 2023, Cannabis used to be the majority revenue-generating segment for the company contributing around 40% to the total sales. However, in 2024, management completed the acquisition of eight beer and beverage brands from AB InBev and another four craft beer brands from Molson Coors – Hop Valley Brewing Company, Terrapin Beer Co., Revolver Brewing, and Atwater Brewery.
These acquisitions have turned out to be profitable for the company as its alcohol business now accounts for 28% of its revenue compared to 13% a year ago. This growth has not affected its cannabis leadership across Europe and North America as during the fiscal first quarter of 2025, Tilray Brands, Inc. (NASDAQ:TLRY) reported $200 million in net revenue, indicating a 13% increase year-over-year. The beverage segment took the lead and grew 132% during the same time. It is one of the best long-term penny stocks to buy according to hedge funds.
4. Fortuna Mining Corp. (NYSE:FSM)
Stock Price: $4.29
5-Year Sales Growth: 32.84%
Number of Hedge Fund Holders: 18
Fortuna Mining Corp. (NYSE:FSM) is a Canadian mining company that focuses on extracting precious metals, primarily gold and silver. The company operates several mines located in Latin America and West Africa, specifically in countries like Argentina, Burkina Faso, Côte d’Ivoire, Mexico, and Peru.
The company is focused on unlocking the geological potential of its properties through strategic investments and responsible mining practices. Management increased its exploration budget for fiscal 2024 from $37 million to $44 million, aiming to expand drilling programs at key sites like the Seguela Mine. The increase in metal prices resulted in Fortuna Mining Corp. (NYSE:FSM) generating a record net income of $50.5 million, translating to earnings per share of $0.16, which exceeded analysts’ expectations of $0.11. It also delivered record sales of $275 million marking a substantial increase compared to previous quarters and positioning the company to exceed $1 billion in total sales for the year.
Fortuna Mining Corp. (NYSE:FSM) is well-positioned to meet its annual production guidance of between 457,000 to 497,000 ounces of gold equivalent. The company is also planning for a progressive mine closure at its San Jose Mine starting in Q1 2025 while continuing operations at a reduced rate. It is one of the best long-term penny stocks to buy according to hedge funds.
3. NIO Inc. (NYSE:NIO)
Stock Price: $4.36
5-Year Sales Growth: 49.65%
Number of Hedge Fund Holders: 20
NIO Inc. (NYSE:NIO) is another Chinese automotive company that focuses on developing premium smart electric vehicles. One of its standout features is its battery-swapping technology, which allows drivers to quickly exchange their depleted batteries for fully charged ones at designated stations. Moreover, in September 2024, the company introduced a mass-market brand called ONVO, which focuses on providing vehicles that also support battery swapping and various battery range options.
During the fiscal third quarter of 2024, NIO Inc. (NYSE:NIO) set a new record with 61,855 vehicle deliveries, marking an increase of 11.6% year-over-year and a 7.8% increase from the previous quarter. The company maintained its status as the top-selling brand in China’s battery electric vehicle (BEV) segment for vehicles priced above RMB 300,000, capturing a 48% market share in that category.
Moreover, its ONVO brand began delivering its first model, the L60, a midsize SUV that competes directly with popular models like the Tesla Model Y and Toyota RAV4. Its upcoming flagship model, the ET9, is in the final testing phase with deliveries expected to start in March 2025. NIO Inc. (NYSE:NIO) plans to increase its monthly production capacity to 10,000 units by December 2024 and further to 20,000 units by March 2025, supporting its growth strategy as it prepares for new product launches. It is one of the 12 best long-term penny stocks to buy according to hedge funds.
2. Sunnova Energy International Inc. (NYSE:NOVA)
Stock Price: $3.43
5-Year Sales Growth: 45.75%
Number of Hedge Fund Holders: 22
Sunnova Energy International Inc. (NYSE:NOVA) specializes in providing solar energy solutions primarily for residential customers. It partners with local dealers and contractors to install solar panels on homes and is a leading player in solar PV systems in the United States. The company also provides various payment plans, such as leases and power purchase agreements (PPAs), which help homeowners adopt solar technology without needing to pay large upfront costs.
Sunnova Energy International Inc. (NYSE:NOVA) is focused on expanding its customer base while maintaining profitability through higher margins and quality credit. In the first nine months of 2024, the company added 76,600 customers, with about 80% being solar customers. Moreover, the company has successfully increased its capital generation through securitizations and tax capital commitments, which have doubled compared to the previous year. The increase in customers resulted in revenue from customer agreements and incentives increasing by 43%, reaching $121.5 million for the nine months ending September 30, compared to the same period last year.
Management not only improved the number of solar energy systems in service by 38%, totaling 222,300 systems but also saw a rise in average revenue per system. Its Power Purchase Agreement (PPA) and lease revenue per system increased by 12% to $1,405. This increase is attributed to slightly larger average system sizes and a higher attachment rate of battery systems, which now stand at 32%. Considering the increased demand for its systems and its total cash of $473.9 million, including $208.9 million in unrestricted cash, it is one of the best long-term penny stocks to buy according to hedge funds.
1. Geron Corporation (NASDAQ:GERN)
Stock Price: $3.54
5-Year Sales Growth: 113.54%
Number of Hedge Fund Holders: 29
Geron Corporation (NASDAQ:GERN) is a commercial-stage biopharmaceutical company focused on developing innovative treatments for blood cancers. Its flagship product, RYTELO, is a first-in-class telomerase inhibitor that has received FDA approval for treating certain adult patients suffering from lower-risk myelodysplastic syndromes (LR-MDS) with transfusion-dependent anemia. This approval marks it as the only company with an oligonucleotide telomerase inhibitor available in the United States.
During the fiscal third quarter of 2024, Geron Corporation (NASDAQ:GERN) reported a net product revenue of $28.2 million from RYTELO, marking a successful first full quarter since its launch. As another important highlight for the quarter, management completed financing transactions to bolster its cash position. This included a synthetic royalty agreement with Royalty Pharma, providing $125 million in exchange for tiered royalty payments, and a 5-year senior term loan agreement with Pharmakon for up to $250 million.
After its successful launch in the US, management is waiting for the review of RYTELO’s MAA in lower-risk MDS by the Committee for Medicinal Products for Human Use (CHMP). If the regulatory approval is granted it plans to launch RYTELO in select EU markets starting in 2026. It ranks first on our list of best long-term penny stocks to buy according to hedge funds.
While we acknowledge the potential of GERN to grow, our conviction lies in the belief that 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 GERN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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