Penny stocks are usually defined as shares of small companies that trade under $1 per share, although the SEC defines a penny stock as a security that trades under $5 per share. There are thousands or even tens of thousands of penny stocks trading on the stock exchange every day. Usually penny stocks trade on the over-the-counter market and are sometimes called “pink sheets” because before electronic trading, they would be printed on pink paper. Sometimes even stocks of large companies can lose their value and move into the penny stock territory and the last financial crisis shows many examples of such companies. Other times, a company that has just started and doesn’t have much in terms of assets and revenue can be listed as a penny stock.
Due to their low valuation, penny stocks can provide their investors with generous returns. At the same time, they are very very risky and investors can often find themselves scammed by fraudsters. In addition, many companies that list on the OTC market choose to do so because they don’t fit the requirements for major exchanges. OTC markets are less regulated and because there are so many companies, the authorities can’t control the information that these companies release, which is why the financial data and other reports issues by penny-stock companies can’t be trusted.
However, many penny stocks can also be found on major exchanges like NYSE and NASDAQ. These companies can be trusted more, due to more strict regulations and if you want to invest in penny stocks, you might want to start with stocks traded on major exchanges. Once you picked a stock, you should do your research to see why it is trading so low. It can be because the company has been launched recently and has yet to prove its worth, in which case it’s important to estimate the company’s potential. A penny stock can also be a so-called “fallen angel”, which had been trading higher, but then dropped due to some developments. These companies can also be a great investment opportunity in case the reason for their decline was just a bump in the road and the stock will most likely recover.
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For a small or beginner investor who decided to take the chance and invest in penny stocks, the question is which companies to choose from. Since there are thousands of penny stocks, the research can be a very tedious process. One way to identify companies that are worth more attention is to look at the hedge fund sentiment towards them. Here’s where our research can come in handy. At Insider Monkey we analyze quarterly 13F filings of over 650 hedge funds and identify their collective sentiment towards thousands of stocks. Among the stocks that hedge funds are investing in, there are quite a few penny stocks and we have selected 15 penny stocks, in which there are at least 14 funds holding long positions that represented at least 20% of the company’s outstanding stock. Additionally, you can take a look at some penny stocks that hedge funds were bullish on last year.
1. Zynga Inc (NASDAQ:ZNGA)
In Zynga Inc (NASDAQ:ZNGA), the number of funds long the stock advanced by 13 to 38 during the second quarter. Collectively those funds held $694.30 million worth of stock at the end of June, which represented 22.20% of the float. Zynga Inc (NASDAQ:ZNGA)’s stock slid into the penny-stock territory pretty much right after the IPO, but the company may be gaining momentum. The company’s mobile revenue has been growing and currently represents 86% of the total and its gross margin of over 69% is the highest in the last five quarters.
2. WMIH Corp. (NASDAQ:WMIH)
WMIH Corp. (NASDAQ:WMIH) saw the number of bullish investors from our database increase by one to 26 between April and June. On the other hand, the aggregate value of their positions declined to $57.80 million from $68.82 million amid a 14% drop registered by the stock. In this way, the funds held 22.40% of WMIH Corp. (NASDAQ:WMIH)’s outstanding stock at the end of June. WMIH Corp. (NASDAQ:WMIH) is the successor of Washington Mutual and it emerged from bankruptcy in 2012. The company’s stock has gained 44% since it started trading, but it still has more room to grow as WMIH Corp. (NASDAQ:WMIH) continues its recovery.
3. Fairmount Santrol Holdings Inc (NYSE:FMSA)
At the end of June, 25 funds from our database held shares of Fairmount Santrol Holdings Inc (NYSE:FMSA) worth $223.41 million in aggregate, which represented 25.60% of the outstanding stock, down from 29 funds with stakes worth $372.10 million a quarter earlier. Fairmount Santrol Holdings Inc (NYSE:FMSA) is a company that provides sand-based proppant solutions and its stock has slid below $5 per share just earlier this year, as it has dropped by 74% year-to-date.
4. Bazaarvoice Inc (NASDAQ:BV)
In Bazaarvoice Inc (NASDAQ:BV), 23 funds amassed $109.45 million worth of stock, representing 26.20% of float at the end of June, compared to 19 funds and $103.60 million, respectively, at the end of March. Bazaarvoice Inc (NASDAQ:BV) is a provider of an SAAS platform that allows its clients to collect and display consumer-generated content. The company’s last financial report (for fiscal 2017) showed revenue growth to $201.2 million from $199.80 million a year ago, but at the same time it showed a decline in expenses, which means the Bazaarvoice Inc (NASDAQ:BV) might be closer to becoming profitable.
5. Synergy Pharmaceuticals Inc (NASDAQ:SGYP)
There were 20 funds tracked by Insider Monkey long Synergy Pharmaceuticals Inc (NASDAQ:SGYP) at the end of June, down by seven over the quarter. Subsequently, the total value of their holdings fell to $330.12 million from $342.30 million and represented 33% of the company’s outstanding stock. Synergy Pharmaceuticals Inc (NASDAQ:SGYP)’s stock has slid by more than 50% since the beginning of the year, amid several consecutive earnings misses. However, for the second quarter, its revenue of $2.30 million managed to beat the estimates by $340,000. Synergy Pharmaceuticals Inc (NASDAQ:SGYP) had its first drug approved in December and analysts estimate that the company might turn to profitability in 2018.
6. Amarin Corporation plc (ADR) (NASDAQ:AMRN)
Amarin Corporation plc (ADR) (NASDAQ:AMRN) saw 19 investors holding $280.18 million, or 26.40% of outstanding stock, at the end of the second quarter, compared to 17 funds with stakes worth $225.49 million at the end of March. Amarin Corporation plc (ADR) (NASDAQ:AMRN)’s lead product is Vascepa and it is currently looking to expand the FDA approval for the drug to be used in other indications.
7. Intelsat SA (NYSE:I)
In Intelsat SA (NYSE:I), there were 19 funds with long positions at the end of June, up from 17 funds a quarter earlier. These funds held $280.18 million worth of stock, or 30.40% of float, heading into the third quarter. Intelsat SA (NYSE:I)’s stock has surged by more than 46% since the beginning of the year, but it is still trading below its 52-week high. The company is currently preparing to launch the fifth of its next-gen satellite.
8. Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN)
During the second quarter, the number of funds from our database long Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) inched down by one to 18 funds, which held $180.85 million worth of stock, or 28.80% of the outstanding shares. Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is engaged in the development of small molecule drug therapies for immune system disorders and infectious diseases. The company has recently reported positive results from a Phase 2 study in a drug for the treatment of paroxysmal nocturnal hemoglobinuria, a rare blood disorder.
9. Hornbeck Offshore Services, Inc. (NYSE:HOS)
Hornbeck Offshore Services, Inc. (NYSE:HOS) saw 18 investors holding $53.91 million worth of stock in aggregate heading into the third quarter, which represented 51.80% of float. During the second quarter, the number of funds long the stock increased by five. Hornbeck Offshore Services, Inc. (NYSE:HOS)’s stock is 60% in the red year-to-date amid disappointing financial results. The company’s stock is likely to stay low until the oil services market remains under pressure, but it has addressing some issues later, such as restructuring its debt to stay afloat for a couple more years.
10. Gran Tierra Energy Inc (NYSEMKT:GTE)
In Gran Tierra Energy Inc (NYSEMKT:GTE), 17 funds from our database amassed $206.18 million worth of shares, or 23.60% of the outstanding stock, at the end of June. During the second quarter, the number of funds long Gran Tierra Energy Inc (NYSEMKT:GTE) inched down by one, but the total value of holdings advanced by nearly 50% on the quarter. Gran Tierra Energy Inc (NYSEMKT:GTE)’s stock has slid due to a decline in oil prices, but it has had some positive developments, such as higher production and disposal of certain assets.
11. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL)
At the end of June, there were 17 funds long Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), which held $79.57 million worth of stock, equal to 23.80% of float. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) has recently submitted its NDA for its lead product, Tavalisse, a drug for the treatment of patients suffering from chronic or persistent thrombocytopenia. The FDA should make its decision by April 2018 and the approval of the drug would allow Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) to take advantage of a new and growing market that is expected to reach $566 million worldwide by 2020.
12. Foamix Pharmaceuticals Ltd (NASDAQ:FOMX)
In Foamix Pharmaceuticals Ltd (NASDAQ:FOMX), the number of funds holding shares fell by one to 16 during the second quarter, while the total value of their holdings declined to $57.95 million from $62.26 million and represented 33.50% of the outstanding stock. Foamix Pharmaceuticals Ltd (NASDAQ:FOMX) is a clinical-stage pharmaceutical company that develops foam-based formulations. The company’s stock has slid into the penny-stock territory earlier this year, as the company reported worse-than-expected financial results.
13. BioScrip Inc (NASDAQ:BIOS)
There were 15 investors holding $131.11 million worth of BioScrip Inc (NASDAQ:BIOS)’s stock at the end of June, which represented 40% of the company. BioScrip Inc (NASDAQ:BIOS) has already seen its stock surge by nearly 200% since the beginning of the year, but just a couple of years ago it was trading significantly above $10.
14. Resolute Forest Products Inc (NYSE:RFP)
During the second quarter, the number of investors bullish on Resolute Forest Products Inc (NYSE:RFP) inched down by one to 15. These funds amassed $179.37 million worth of shares, representing 45.40% of float. Resolute Forest Products Inc (NYSE:RFP) sells forest products and its stock has been consistently declining since 2011. The decline is attributed to lower demand for print media, which represents around half of the company’s business. However, the management has been striving to reduce the importance of paper in its product mix in order to combat the headwinds. Until it does, the stock is likely to remain out of favor among investors.
15. Internap Corp (NASDAQ:INAP)
In Internap Corp (NASDAQ:INAP), there were 14 funds holding $85.66 million worth of shares, which was equal to 28.50% of the outstanding stock at the end of June, down from 17 investors with stakes valued at $84.41 million a quarter earlier. The stock of Internap Corp (NASDAQ:INAP), a provider of Internet infrastructure, has surged by over 190% since the beginning of the year. A couple of years ago there were discussions about a potential acquisition of the company, with some estimates putting the offer at around $8 per share.
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