In this article, we will look at the 8 Hot Penny Stocks To Invest In According to Hedge Funds.
Financial markets are betting that the Federal Reserve’s half-point interest rate cut in September will be followed by slower and smaller moves due to the surge in US job growth. A Labor Department report released on Friday, October 4, shows that employers added around 254,000 jobs in September, which was much more than expected. Unemployment declined to 4.1%. Federal Reserve chair Jay Powell said that the US Central Bank would consider returning to its more usual quarter-point cut in November if economic data remained robust.
In back-to-back appearances on Yahoo Finance and Bloomberg TV, Chicago Fed President Austan Goolsbee called the jobs report “superb,” saying that continued strong labor market data would give him additional confidence that the US economy is not headed for a crash and is at the full employment goal of the Fed.
Even so, he said that Fed policymakers would likely need to cut rates by “a lot” over the coming 12 to 18 months to ensure the strength of the labor market and that inflation stays around the Fed’s 2% target, as it has in recent months.
Stocks Surge After Job Report Gives Investor Confidence
Stocks surged on Friday, October 4, after the better-than-expected jobs report boosted investor confidence and perception about the health of the US economy. Michelle Cluver, head of ETF model portfolios at Global X, said:
“After a summer of weak labor data readings, this is a reassuring reading that the US economy remains resilient, supported by a healthy labor market. We remain in an environment where good economic news is good news for the equity market as it increases the potential for a soft landing.”
This bounce helped offset the losses sustained in recent days. After an unusually strong first nine months of 2024, increasing geopolitical tensions in the Middle East resulted in a shaky start in October for stocks.
Will Small Caps Rally in the Coming Days?
The US economy has successfully evaded the chances of a recession. The expected performance of small caps in a slowing economy has thus become an important discussion. Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management recently joined CNBC for an interview to talk about exactly that: the expected performance of small cap stocks in an economy going towards a soft landing. Prial is of the opinion that this is the beginning of a multi-year bull cycle for small cap stocks. Her claim is based on certain underlying reasons, including small caps being significantly underowned at the present. In fact, they are standing at record lows as a percentage of the total equity market.
In addition, the valuations of small caps are substantially attractive, and are considerably below their large cap counterparts in the S&P 500. The relative earnings growth for small cap stocks is another significant factor. With the earnings growth of small cap stocks expanding. Prial expects small cap stocks to be growing faster than their large-cap counterparts by the end of the year. She thinks that the Federal Reserve interest rate cuts and the confidence that the economy is moving towards a soft landing were what we really needed to turn the situation around.
Examining the S&P 500 EPS growth rate estimates shows that the market is anticipated to experience more than a 13% year over year growth in Q4 and more than 15% in the coming year. Since Prial mentioned that small caps are likely to outperform large caps in terms of growth in the coming future, she clarified that the overall indices might not be able to perform above the 15% threshold. Investors thus need to be good stock pickers to capitalize on the earnings growth trend, as she believes in a number of small cap stocks experiencing a 15% to 20% growth in the coming year.
Prial further broke the small cap category down, saying that she likes the energy sector in this domain because it will be a major player in the AI and data center industry in the years to come.
With small-cap stocks expected to rally, let’s look at the 8 hot penny stocks in invest in according to hedge funds.
8 Hot Penny Stocks To Invest In According to Hedge Funds
Our Methodology
To compile the list of the 8 hot penny stocks to invest in according to hedge funds, we used the Finviz stock screener. We set the price filter to under $5 and the price target filter to positive 40% above price. We then examined the year-to-date performance of these stocks as of October 4, and picked the ones that are up significantly (at least 20%) for the year and are also popular among elite hedge funds. The stocks are sorted in ascending order of the number of hedge fund holders, as of Q2 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).
8 Hot Penny Stocks To Invest In According to Hedge Funds
8. New Gold, Inc. (NYSE:NGD)
Share Price: $2.85
Year to Date Performance: 95.21%
Number of Hedge Fund Holders: 21
New Gold Inc. (NYSE:NGD) is a Canadian gold mining company that operates a portfolio of two core-producing assets in Canada: the New Afton copper-gold mine and the Rainy River gold mine. The New Afton mine is located 10 km west of Kamloops, 350 km northeast of Vancouver, in British Columbia, Canada. Rainy River is located in Northwestern Ontario. The company also owns other Canada-focused investments. It acquires, explores, and develops natural resource properties.
The company is running on solid fundamentals, delivering quarterly plans according to its outlook. New Afton delivered a strong Q2 2024 production result at low cost, while Rainy River made substantial progress on the planned waste stripping program. The open pit is on the path to delivering on its increasing production profile for the second half of 2024.
New Gold Inc. (NYSE:NGD) ended the first half of 2024 with positive free cash flow and has entered a period of sustained free cash flow generation. It is also making progress on key growth projects, all of which remain on track for completion in the second half of 2024.
The company’s exploration efforts across both operations made substantial progress. Its New Afton team completed its exploration drift early in the quarter, immediately advancing priority near mine targets. Exploration drilling at Rainy River is also making meaningful progress, both underground and surface.
New Gold Inc. (NYSE:NGD) produced around 69,000 gold ounces and 13.6 million pounds of copper in Q2. Rainy River managed to produce 50,300 ounces of gold according to plan, while advancing waste stripping. New Afton produced around 18,300 ounces of gold and 13.6 million pounds of copper. These numbers show a 10% increase in gold and a 13% increase in copper production compared to Q2 2023, highlighting the company’s progress. The company ranks eighth on our list of the top hot penny stocks to invest in according to hedge funds.
7. Butterfly Network, Inc. (NYSE:BFLY)
Share Price: $1.90
Year to Date Performance: 75.93%
Number of Hedge Fund Holders: 23
Butterfly Network (NYSE:BFLY) is a digital health company specializing in transforming care through intuitive software, semiconductor-based ultrasound technology, services, and educational offerings. The company has two portable ultrasound devices on the market: the third-generation Butterfly iQ3 and the second-generation Butterfly iQ+. The Ultrasound-on-Chip technology powers both technologies, allowing them to undertake whole-body imaging on a single handheld probe through digital semiconductor technology.
The company offers cloud-based software solutions to in-app educational tutorials, healthcare systems, formal education programs (through the Butterfly certified courses and Butterfly Academy software), and teleguidance. It also offers professional services for large-scale deployments. Users using the Butterfly application can utilize six imaging modes: Code Doppler, B-Mode, Power Doppler, M-Mode, Biplane Imaging, and Pulsed-Wave Doppler.
Butterfly Network (NYSE:BFLY) is accelerating its revenue momentum to become more efficient. It is also continually investing in its future. It held an Investor Day earlier this year, introducing plans and roadmaps for its robust way forward. These plans, which it calls pillars, include accelerating growth in its core focus business, expanding its market, becoming more accessible to new user bases and new care settings (such as the home), and investing in R&D to maintain its differentiated tech, especially in its semiconductor innovation.
It reported $21.5 million in revenue in Q2 2024, showing a 16% year-over-year growth. This made Q2 2024 the most profitable quarter in terms of revenue in the company’s history. This indicates that its plans are delivering and working. A majority of this growth can be attributed to the iQ3 sales and an ASP uplift in the US.
In addition, solid performance by Butterfly Network’s (NYSE:BFLY) international team was another major factor, which launched iQ3 in Canada at the beginning of Q2, opened new markets in Southeast Asia, and added newly EU MDR cleared advanced features on its international iQ+ product.
6. Mereo BioPharma Group (NASDAQ:MREO)
Share Price: $4.40
Year to Date Performance: 90.48%
Number of Hedge Fund Holders: 23
Mereo BioPharma Group (NASDAQ:MREO) is a biopharmaceutical company that develops therapeutics for rare diseases. It holds a portfolio of late-stage clinical product candidates. Its two rare disease product candidates include setrusumab (which treats osteogenesis imperfecta (OI)) and alvelestat (which primarily treats severe alpha-1 antitrypsin deficiency-associated lung disease).
Apart from rare disease programs, the company has two oncology product candidates in clinical development: Etigilimab and Navicixizumab. Etigilimab, an IgG1 monoclonal antibody, improves the activation and effectiveness of T-cell and NK-cell antitumor activity. Navicixizumab, a bispecific antibody, is being developed to treat late-line ovarian cancer and inhibits delta-like ligand 4 (DLL4) and vascular endothelial growth factor (VEGF).
Mereo BioPharma Group (NASDAQ:MREO), along with its partner Ultragenyx, announced positive 14-month results from the Phase 2 portion of the ongoing Phase 2/3 Orbit study (NCT05125809). These results showed that treatment with setrusumab continually brought the incidence of fractures in patients with OI down. The treatment results in a fracture rate reduction of 67%, highlighting the potential of setrusumab to bring about long-term, clinically significant benefits for people with this condition. It also brought about meaningful and ongoing improvements in lumbar spine bone mineral density (BMD) at month 12 without evidence of plateau.
The company continues to work through detailed regulatory submissions to ensure the AATD program is Phase 3-ready by the end of the year in the domain of alvelestat. This is running along with its ongoing discussions with multiple potential partners. Mereo BioPharma Group’s (NASDAQ:MREO) proceeds from the June financing position it to support the ongoing pre-commercial activities critical for a successful launch of setrusymad in Europe after its potential approval. Mereo (NASDAQ:MREO) ranks sixth on the list of the 8 hot penny stocks to invest in according to hedge funds.
5. Matterport, Inc. (NASDAQ:MTTR)
Share Price: $4.55
Year to Date Performance: 69.14%
Number of Hedge Fund Holders: 25
Matterport (NASDAQ:MTTR) is a datafication and digitization company. Its technology platform leverages spatial data accumulated through a variety of digital capture devices to metamorphose physical spaces and buildings into photorealistic, dimensionally accurate digital twins. This provides its subscribers access to significant insights and valuable building information.
The company’s platform is specialized in digitizing, managing, and accessing buildings, places, and spaces online. It has scaled and developed its three-dimensional reconstruction technology by using the power of Cortex, its AI-driven software engine. Cortex (NASDAQ:MTTR) employs machine learning to recreate three-dimensional, photorealistic representations of entire building structures, including equipment, contents, and furnishings.
Its offerings span data licensing, software subscriptions, services, and product hardware. The company boasts a footprint across various end markets, including commercial and residential real estate, facilities management, and others.
Matterport’s (NASDAQ:MTTR) quarterly results are boosting efficient growth for the company. Subscription revenue grew by 16% year over year, reaching a record $24.2 million in the quarter. This accounts for around 57% of the company’s total revenue. The primary driver of this growth is Matterport’s (NASDAQ:MTTR) strategic focus on expanding the recurring subscription revenue within its business.
In addition, the company is delivering value to its customers and developing new products. Project Genesis, its latest AI initiative, and its spatial data-driven efforts, like Property Intelligence from its Q1 Winter Release, have accumulated fame amongst partners and customers alike. It is actively developing its digital capabilities and is on a path to rolling out new breakthroughs in its Fall Release later in 2024.
4. Geron Corporation (NASDAQ:GERN)
Share Price: $4.31
Year to Date Performance: 104.27%
Number of Hedge Fund Holders: 26
Geron (NASDAQ:GERN) is a late-stage clinical biopharmaceutical company that develops and commercializes therapeutic products for myeloid hematologic malignancies. It is developing imetelstat, an investigational first-in-class telomerase inhibitor.
It is in Phase 3 clinical trials, and inhibits the uncontrolled proliferation of malignant stem and progenitor cells in myeloid hematologic malignancies. This treats low or intermediate-1 risk myelodysplastic syndromes and intermediate-2 or high-risk myelofibrosis. The company’s lead indication for imetelstat is in Low or Intermediate-1 risk myelodysplastic syndromes.
The company recently attained FDA approval for RYTELO, which is its branded name for imetelstat. RYTELO is the first and only telomerase commercially available in the US. The efficient mobilization of its team and strong commercial infrastructure at launch have brought about encouraging early launch results for the product.
This positive response in the hematology community highlights the unmet needs for lower-risk MDS patients with symptomatic transfusion-dependent anemia. Since a number of its customers are pushing to gain access to RYTELO, the company is seeing strong market inclinations to add the product to treatment pathways, formularies, and EMRs, along with community settings.
In addition, RYTELO gained the position of a Category 1 and 2A treatment for lower-risk MDS patients after the MDS NCCN Guidelines were updated on July 25. That gives RYTELO approval for use in both RS negative and RS positive first-line ESA ineligible patients and in both RS positive and RS negative second-line patients. This stands regardless of prior first-line treatment. The NCCN Guidelines have proved favorable for the product, putting RYTELO in a strong competitive position.
Geron’s (NASDAQ:GERN) distribution network and specialty distributor networks are fully activated to support customer demand across community oncology clinics and hospitals. RYTELO is available to HCPs across the 48 contiguous states within 24 to 48 hours through the company’s specialty distribution networks. The company ranks fourth on our list of the top hot penny stocks to invest in according to hedge funds.
3. Vimeo, Inc. (NASDAQ:VMEO)
Share Price: $4.85
Year to Date Performance: 23.72%
Number of Hedge Fund Holders: 27
Vimeo (NASDAQ:VMEO) operates a video experience platform that offers an elaborate list of video tools via a software-as-a-service (SaaS) model. Its cloud-based tools allow users to collaborate, create, and communicate with video on a single platform. Eliminating barriers to video, the platform solves essential video needs, such as collaboration, creation, hosting, distribution, analytics, and monetization.
The company sells subscription plans, including self-serve and add-ons, Vimeo Enterprise, and others, directly online. The Vimeo Enterprise platform relates to video offerings designed for organizations and teams. The company also provides products and services related to over-the-top (OTT) video monetization solutions, allowing customers to launch and operate their own video streaming channels directly to their audience.
Vimeo (NASDAQ:VMEO) is increasing in popularity, with its revenue increasing by 2% in Q2. It experienced a 55% revenue growth, generating $20 million in free cash flow. It ended the quarter with $311 million in cash and equivalents, highlighting the underlying strength of the company’s business model. Supported by its strong financial foundation, the company has plans to boost investments in growth opportunities in the second half of 2024, focusing on customer success and driving innovation.
The company also holds an advantageous position in the rapidly expanding video market, where 82% of the internet is video. With video formats, content volume, and the number of creators increasing rapidly, Vimeo (NASDAQ:VMEO) stands to benefit from these trends. Its self-serve business caters to a thriving demographic of individual marketers, creators, and learners, positioning the company for substantial growth. The company also repurchased approximately 4 million shares, showing confidence in its business model and utilizing $15 million in capital in Q2. It ranks third on our list of the 8 hot penny stocks to invest in according to hedge funds.
2. Nuvation Bio Inc. (NYSE:NUVB)
Share Price: $2.34
Year to Date Performance: 54.97%
Number of Hedge Fund Holders: 35
Nuvation Bio (NYSE:NUVB) is a biopharmaceutical company that develops therapeutic and differentiated candidates to tackle the gaps in oncology. It is advancing several clinical-stage candidates, including a bromodomain and extra-terminal (BET) inhibitor, a ROS1 inhibitor, a mutant isocitrate dehydrogenase 1 (mIDH1) inhibitor, and a drug-drug conjugate (DDC).
The company has an elaborate portfolio of development candidates, including safusidenib (mIDH1), taletrectinib (ROS1), NUV-1511 (DDC), and NUV-868 (BET). Safusidenib, an oral, potent, targeted inhibitor of mIDH1, is under evaluation in a global Phase II trial in patients with low-grade IDH1-mutant glioma. Taletrectinib is an oral, potent, CNS-active, selective, ROS1 inhibitor that caters explicitly to the potential treatment of ROS1-positive non-small cell lung cancer (NSCLC). Furthermore, NUV-868, a BD2-selective oral small molecule BET inhibitor, inhibits BRD4. The company is conducting a Phase I/II study of NUV-1511.
Nuvation (NYSE:NUVB) is continually progressing in these studies. It published safety and efficacy data from pivotal Phase 2 TRUST-I clinical study of taletrectinib in the Journal of Clinical Oncology and presented it at the 2024 American Society of Clinical Oncology (ASCO) Annual Meeting. It also presented pooled data from the pivotal Phase 2 TRUST-I and TRUST-II studies at the European Society of Medical Oncology (ESMO) Congress 2024. This will support the company’s planned New Drug Application (NDA) in the United States.
It is also continuing to dose escalate in a Phase 1/2 study of NUV-1511, its first clinical-stage drug-drug conjugate, and is progressing the global Phase 2 study of safusidenib. It is exploring the next steps for NUV-868 in new indications and has shifted focus to its late-stage pipeline for preparations to potentially bring taletrectinib to patients in the US in 2025. The company boasts a strong balance sheet with cash, cash equivalents, and marketable securities of $577.2 million as of June 30, 2024. It takes the second spot on our list of the 8 hot penny stocks to invest in according to hedge funds.
1. Terawulf, Inc. (NASDAQ:WULF)
Share Price: $4.71
Year to Date Performance: 96.25%
Number of Hedge Fund Holders: 37
Terawulf (NASDAQ:WULF) owns and operates vertically integrated, environmentally clean bitcoin mining facilities in the US. It generates domestically produced Bitcoin powered by 95% zero-carbon energy resources. These include hydro, solar, and nuclear, with the objective of using 100% zero-carbon energy. It has two mining facilities: the Nautilus Cryptomine facility in Pennsylvania (a joint venture with Cumulus Coin, LLC) and the Lake Mariner Data facility in New York.
The company’s principal operations include operating, developing, and constructing bitcoin mining facilities in the US. Each of its mining facilities, either owned through joint ventures or wholly, deploys a range of computers that solve complex cryptographic algorithms. The computing power is provided to a mining pool operator to validate transactions on the Bitcoin network and mine Bitcoin.
It attained several milestones in the second quarter of 2024 that significantly boosted its position as one of the most efficient public Bitcoin mining and digital infrastructure owning companies. It completed the construction of Building 4 at Lake Mariner, taking its total mining capacity to over 10 exahash per second. It boasts industry-leading power costs estimated at $0.035 per kilowatt hour for 2024, with a fleet efficiency of 23.7 joules per terrahash, giving it a competitive standing.
Terawulf (NASDAQ:WULF) also strategically amended its Bitman purchase agreements to specify the delivery of S21 Pro miners. It has chosen to acquire around 5,000 of the 30,000 miners available under the option purchase agreement. This monetizes at the rate of $16 per terahash. Through the WULF Den project, it has also made substantial progress in its AI and high-performance computing initiatives. In addition, the company has streamlined its capital structure, eliminating debt and converting around $29 million (out of $41 million) lender warrants into common shares. These initiatives strengthen the company’s balance sheet, positioning it for sustained future growth.
Overall, WULF ranks first among the 8 hot penny stocks to invest in according to hedge funds. While we acknowledge the potential of penny stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WULF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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