In this article, we will take a detailed look at the best Canadian penny stocks to invest in now.
We define penny stocks as shares trading under $5.00, which usually fall into the small cap category. As illustrated by the performance of thematic ETFs, the small cap factor, which performed well historically, fell out of favor sometime in the mid-2010s and has kept underperforming ever since. The 2023-2024 period brought even stronger underperformance of penny stocks, as the proliferation of the AI trend created disproportionate opportunities across the market, favoring only a handful of large capitalization big tech names. This was an important factor in explaining the difference in cross-country stock market returns as well – for example, the Canadian stock market has largely moved in sync or even occasionally outperformed the US market during the first decade of the century, until a noticeable decoupling took place in the early 2010s. Besides lagging on productivity improvement and different monetary policies, the size factor clearly played a role, as Canada lacks big tech players to capitalize on the rapid technological advancements that took place during the 2010s.
READ ALSO: 10 Best Canadian Stocks to Buy According to Billionaires
As a result, both the Canadian and small-size factors have found themselves at multi-year lows relative to the US stock market at the end of calendar 2024. While many investors make reactive decisions and avoid stocks with historical underperformance, the smart way to make money is to often take contrarian bets based on forward-looking signals that may suggest a reversal in the previous tendencies. The main questions to answer in this article are the following: will the small cap factor and Canada stocks become favored again and able to outperform their large cap and US counterparts?
When discussing the small factor, we get to see that its recent 2023-2024 underperformance was accelerated by rising stock market concentration to record levels. External data suggests that the 2024 US stock market concentration, as measured by the share of the top 10 largest companies in the total market, was at a record 38%, significantly above the historical average of around 24%. This means that most of the stock market returns were driven by a handful of companies favored by AI-related FOMO which overstretched their market valuations. In a scenario where large caps perform well, the small caps fall out of favor automatically, by setup.
History shows, however, that concentration tends to revert to the mean – this is already happening in 2025 as the Magnificent 7 ETF, which includes the largest big tech stocks, has significantly underperformed the broad market, decreasing its concentration. Furthermore, the small cap factor tends to perform well when the economy is growing, interest rates are low and capital moves freely to riskier assets – while we aren’t there yet, the stock market is a forward-looking animal that tends to anticipate economic developments 6-12 months ahead. We believe small caps and particularly penny stocks may start performing well in anticipation of lower interest rates and better economic conditions in 2026 and beyond, past the current tariff turmoil and other uncertainties induced by rapid policy changes brought by the new US administration.
There are reasons to expect an improvement in the performance of Canadian stocks relative to the US market. First, the Trump Tariff Turmoil has much worse potential implications for the US than it does for Canada – the US has put its entire export/import base at risk of retaliation, while Canada only risks tariffs for its US exports (and likely at a lower overall tariff rate). Second, the breaking of economic and ideological ties with the new US administration could lead to an overall mobilization of the Canadian people and political class, and drive several positive developments: (1) substitution of US consumer brands with local Canadian brands; (2) accelerating investments into the mining/energy infrastructure and pipelines to create alternative paths and markets for the main Canadian product, which is commodities. Both (1) and (2) would have positive implications for the entire Canadian stock market and economy.
The main takeaway for readers is that combining the small size factor with the Canadian factor could lead to substantial outperformance relative to the US market which witnesses heightened uncertainty and negative returns year-to-date. In such a scenario, Canadian penny stocks appear the ideal securities to pick for a bet on both factors, which would be contrarian to the trends we witnessed in the last 10 years.
Our Methodology
To compile our list of best Canadian penny stocks we use a stock screener to filter for Canadian companies trading in the US with a stock price below $5.00. Then we compared the list with our proprietary Q4 2024 database of hedge funds’ ownership and included in the article the top 13 stocks with the largest number of hedge funds owning the stock, ranked in ascending order.
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).
13. Baytex Energy Corp. (NYSE:BTE)
Closing Stock Price as of April 17th: $1.74
Number of Hedge Fund Holders: 16
Baytex Energy Corp. (NYSE:BTE) is an oil and gas company that focuses on the acquisition, development, and production of crude oil and natural gas, with operations in both Canada and the US. The company’s asset portfolio includes both light oil and heavy oil operations, covering approximately 269,000 gross acres in total. BTE was included on our recent list of 8 Best Value Penny Stocks to Invest in Now.
Baytex Energy Corp. (NYSE:BTE) delivered a strong performance in 2024, generating $656 million in free cash flow with over 70% generated in 2H 2024. The company achieved 10% production per share growth, improved cash cost structure by 5% on a barrel of energy (BOE) basis, increased net asset value per share by 13%, and reduced net debt by 5% in Canadian dollar terms and 13% in USD terms. Through their balanced shareholder return framework, they allocated approximately half of the free cash flow to debt reduction and the remainder to shareholder returns through share buybacks and quarterly dividends.
Baytex Energy Corp. (NYSE:BTE) demonstrated strong operational execution across its portfolio, with notable improvements in the Eagle Ford where they achieved an 8% improvement in operated drilling and completion costs per completed lateral foot over 2023. For 2025, BTE maintains unchanged guidance with exploration and development expenditures of $1.2 billion to $1.3 billion and production of 150,000 BOE a day at the midpoint. The company plans to continue its efficient development pace in the Eagle Ford, further advance the Pembina Duvernay, and maintain efficient heavy oil development along with level Viking operations. At a stable $70 WTI, the company expects to generate approximately $400 million of free cash flow in 2025, with the majority anticipated in the second half of the year. The strong operational execution and optimistic management guidance make BTE one of the best penny stocks to invest in.
12. enGene Holdings Inc. (NASDAQ:ENGN)
Closing Stock Price as of April 17th: $4.00
Number of Hedge Fund Holders: 17
enGene Holdings Inc. (NASDAQ:ENGN) is a clinical-stage biotechnology company specializing in developing non-viral gene therapies targeting mucosal tissues and other organs, utilizing proprietary platforms and technology. In simpler words, ENGH is trying to find innovative ways to deliver genetic treatments directly to affected organs and areas of the body, like the lungs. The company’s advantage consists of several promising products undergoing clinical studies, which could have tremendous marketable potential if fully successful.
enGene Holdings Inc. (NASDAQ:ENGN) has made substantial progress in developing “detalimogene voraplasmid”, a non-viral genetic medicine designed for treating non-muscle invasive bladder cancer (NMIBC), which represents 75-80% of bladder cancer diagnoses. The company is well-capitalized with a projected runway into 2027 and is targeting several near-term milestones, including pivotal cohort updates in 2H 2025, BLA filing in mid-2026, and potential launch in 2027. The NMIBC market represents a significant opportunity, with forecasts exceeding $20 billion.
Preliminary data from the LEGEND study shows promising clinical activity and a generally favorable safety profile, with treatment-related adverse events being largely mild and instrumentation-related. “Detalimogene” offers potential advantages over competing therapies, including a non-viral delivery system that requires no specialized handling or cold-chain storage, and a well-characterized, cost-effective manufacturing process that supports wide availability. The therapy is designed to be urologist-friendly and suitable for early use in the treatment sequence, requiring only one hour of chair time total and no need for urine bleaching or an induction period. enGene Holdings Inc. (NASDAQ:ENGN) has substantial upside potential from the aforementioned product pipeline, making it one of the best penny stocks to consider in 2025.
11. Tilray Brands, Inc. (NASDAQ:TLRY)
Closing Stock Price as of April 17th: $0.45
Number of Hedge Fund Holders: 19
Tilray Brands, Inc. (NASDAQ:TLRY) operates several consumer brands across the cannabis, beverage alcohol, and wellness sectors. The cannabis division produces and distributes medical and adult-use products, while the beverage alcohol segment encompasses a portfolio of craft beer and spirits. In the wellness category, TLRY offers food products and CBD-infused beverages. The company has the advantage of vertical integration and a global footprint, with operations in over 20 countries, which allows it to stay competitive and reach millions of consumers.
Tilray Brands, Inc. (NASDAQ:TLRY) generated net revenue of $185.8 million in Q3 2025, with constant currency revenue of $193 million, representing a 1% decline YoY. The mild revenue decline was more than compensated by significant margin improvements, with cannabis gross margins reaching 41%, the highest in almost 2 years, and overall gross margin increasing 200 basis points to 28% compared to the prior year. The company maintains a strong balance sheet with $248 million in cash and marketable securities and has reduced debt levels by $58 million during the fiscal year to date.
Tilray Brands, Inc. (NASDAQ:TLRY) has strategically positioned itself as a diversified consumer products company, operating as the fifth largest craft beer business in the United States, the largest cannabis business in Canada by revenue, and maintaining leadership in medical cannabis in Europe. The company’s international cannabis business is showing strong growth, particularly in Germany, where flower sales increased 79% and extract sales increased 31% post-legalization. Strategic initiatives implemented during the quarter focused on improving margin and profitability rather than pursuing unsustainable revenue growth, including SKU rationalization in the beer business and strategic allocation of cannabis products to higher-margin international markets. With 19 hedge funds owning the stock and a share price of just $0.45, TLRY is one of the best penny stocks to be found on our list.