The few weeks leading to President Donald Trump’s inauguration were the merriest for investors. A lot of money piled into the stock market, which saw the broad market index gain 2.74% in the last week of the inauguration. But all of that happened to be an ephemeral episode.
The S&P 500 has been down 4.13% in the past five days, and this is not the only index in red this week. The tech-heavy Nasdaq composite has pulled back 6.86% in the past five days, and so has the Dow, although it has a smaller margin of 1.31%. In fact, all of the indices are on pace for their worst week this year, with the Nasdaq and the S&P looking to record the worst week in five months.
What is interesting is that the same reason sentiment was hugely positive at the opening of the year is also one of the main factors driving the volatile market. Early in February, Trump said he would use tariffs to compel the US’s neighbors (Canada and Mexico) and its largest trading partner (China) to help them address immigration and drug issues. The tariffs on China went into effect on February 4, and those on the neighbors are scheduled to begin implementation on March 4, 2025. Investors were hoping that this threat would fizzle out, but a recent post on Trump’s Truth Social account indicates the opposite.
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The problem is that even the threat of tariffs is enough to throw the market into a frenzy. Investors are not wrong to panic because experts agree that the tariffs will soften the economy. According to Erica York, vice president of federal tax policy at the Tax Foundation, the tariffs will inflict pain on the US economy.
York says: “It means incomes and returns to shareholders in the US economy are lower instead, because if businesses have to eat those higher costs, it means they have less to pay their workers. It means they have less to hire and expand employment, or less to invest. So no matter what channel the price impact takes, it’s Americans who are hurt by the tariffs.”
And this situation has created an environment where the market appears irrational. According to Jay Hatfield, CEO of Infrastructure Capital Advisors, “We’re in a stalled, range-bound, slightly irrational market as we wait for policy clarity.”
The economic softening resulting from the tariffs is made worse by a softer-than-expected consumer confidence reading. According to the latest release, US consumer confidence dropped sharply in February 2025. In fact, The Conference Board’s Stephanie Guichard notes, “In February, consumer confidence registered the largest monthly decline since August 2021.” Add to that the disappointing retail sales data and a jump in jobless claims, and you have a properly rattled stock market.
The problem with a broadly underperforming market, as indicated by all the indices being in the red for the better part of the past 30 days, is that investors tend to undervalue some shares that deserve a better valuation. But this is not always a bad thing because it opens up potential opportunities.
In a recent interview, Bank of America’s Marci McGregor said that “volatility can open up potential growth opportunities as some investments become more reasonably priced, aligning with value stock strategies.” At the same time, penny stocks are likely to make huge moves in a volatile market, according to Timothy Sykes, a long-time penny stock trader.
If investors’ worries about the health of the US economy continue to mount, the market’s subdued sentiment is likely to continue. In other words, there’s never been a more apt time to consider a combination of value and penny stocks—value penny stocks.
A portfolio manager studying various stocks and other securities on a tablet.
Our Methodology
To make the list of the 8 best-value penny stocks to invest in now, we used a screener to identify stocks trading under $5 per share with forward P/E ratios of less than 20, as of March 3. We further looked for stocks with a positive upside potential of over 30% based on analysts’ consensus price targets. Finally, we ranked the companies based on hedge fund sentiment using Insider Monkey’s database of 1008 elite hedge funds’ holdings at the end of Q4 2024.
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).
8 Best Value Penny Stocks to Invest in Now
8. Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG)
Price as of March 3: $1.86
Forward P/E ratio: 7.41
Analysts upside potential: 39.78%
Number of hedge fund holders: 12
Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) is one of the major electricity concessionaires in Brazil. It generates, transmits, distributes, and commercializes electric energy and natural gas. CEMIG is the fourth-largest electricity company in Brazil in terms of revenue.
On February 26, 2025, Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) announced that it had acquired Empresa de Transmissão Timóteo-Mesquita S.A. (ETTM) from Grupo Fram Capital for 30.0 million reals ($5.1 million), although the transaction is not yet effective. This move allows CEMIG to boost its transmission network and future revenues. The company is doing well in revenues, having generated 3.28 billion reals ($556.03 million) in net profits in Q3 2024. And this income is likely to improve given the company’s recent moves focused on modernizing its infrastructure (including the ETTM acquisition).
Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) is also diversifying operations into renewable energy to align with its ESG objectives. The company has solid institutional backing from 12 hedge funds, and analysts predict a 39.78% upside potential. This indicates that the current $1.86 per share price is unlikely to last long.
7. Baytex Energy Corp. (NYSE:BTE)
Price as of March 3: $2.26
Forward P/E ratio: 10.80
Analysts upside potential: 59.29%
Number of hedge fund holders: 16
Baytex Energy Corp. (NYSE:BTE) is a Canadian oil company that operates mainly in North America. It primarily invests in exploration and development projects and is known for disciplined capital allocation and operational excellence.
Late last year, Baytex Energy Corp. (NYSE:BTE) revealed the sale of its Kerrobert Thermal Asset for approximately $150 million. The transaction should close in the current quarter. This move will help the company to simplify operations and focus on more profitable assets. The proceeds of the sale will go a long way to help fund the 2025 budget. In this budget, the company intends to spend $1.0 billion to maintain production between 145,000 and 150,000 barrels of oil equivalent per day. This focus on cash flow over aggressive growth implies that Baytex prioritizes stability.
Operationally, the company is strong. The latest figures show that Baytex finally managed to turn a corner: the company reported a net income of CAD 185 million ($127.89 million) in Q3 2024 and CAD 220 million ($152.09 million) in free cash flow. This contrasts sharply with the CAD 264.97 million ($183.08 million) net loss reported in the same quarter in the previous year. The company also expects free cash flow to improve in the upcoming financial results, which explains why it deserves a spot on this list.