Five Penny Stocks to Buy Now

Penny stocks are very risky to invest in, mainly due to the fact that many of these companies are trading over the counter and usually don’t provide a lot of information to investors. However, there are also stocks that are priced below $1 per share trading on bigger exchanges and there could be a number of reasons why they are priced so low. For example, after oil prices dropped, many energy stocks lost a lot of ground and many small-cap companies saw their valuation dwindle. Since oil price fluctuations are usually cyclical, it’s often the case that many cheap oil stocks are actually good bargains and are poised to grow once oil prices rebound. Another reason why a stock can slid into penny-stock territory is a one-time event that affected the company’s performance or prospects, which led to investors heading to the exits. While sometimes an event like this could represent an eventual bankruptcy of the company, at other times the stock may drop due to a simple overreaction and a closer analysis may also reveal that the stock is deeply undervalued.

Nevertheless, there are thousands of penny stocks trading even on larger exchanges, so it can be really difficult for someone to find a bargain among them. Here’s where our research comes in handy. We track over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings with the Securities and Exchange Commission, we can determine how many funds held long positions in an individual stock. This is useful, because the investors we follow are some of the best-skilled stock pickers on the Street and employ significant resources in identifying undervalued companies and opportunities that may be missed by the broader market due to the possible underlying risk. With this in mind, below we are going to take a closer look at five penny stocks that ranked as the most popular among the investors we track. It’s important to point out that even though some of these stocks weren’t penny stocks last quarter, they are still worth taking a closer look at since smart money investors usually buy stocks with long-term potential.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 39.7% gains over the past 12 months and outperformed the 24.1% gain enjoyed by the S&P 500 ETFs. Our enhanced small-cap hedge fund strategy returned more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points over the last 4.5 years (see details here).

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In PharmAthene, Inc. (NYSEMKT:PIP), a $46 million biodefense company, eight investors in our database held roughly 17.60% of its outstanding stock heading into 2017, up from six funds a quarter earlier. It should be mentioned that the stock dropped to penny-stock territory just last month, when PharmAthene, Inc. (NYSEMKT:PIP) paid a special dividend of $2.91 per share. The dividend was part of the company’s plan to return some $200 million it obtained following its litigation with SIGA over its smallpox antiviral Arestvyr. During the fourth quarter, billionaire Jim Simons‘ Renaissance Technologies boosted its stake in PharmAthene, Inc. (NYSEMKT:PIP) by 2.83 million shares to 3.35 million shares.

Then there’s Ocera Therapeutics Inc (NASDAQ:OCRX), in which the number of funds long the stock stood unchanged at nine as of the end of the fourth quarter. However, the aggregate value of their holdings dropped to $11.99 million from $15.14 million and represented some 24.70% of its float at the end of 2016. Only three years ago, Ocera’s stock was trading north of $16 per share, but lost ground as the company’s lead product for the treatment of hepatic encephalopathy (HE) had some difficulties along the road. At the end of January, the stock plunged from around $2.00 per share to below $1.00, after Ocera Therapeutics Inc (NASDAQ:OCRX) announced that its lead candidate failed to beat a placebo in terms of time to improvement in HE symptoms. Dan Gold’s QVT Financial reported ownership of some 906,300 shares of Ocera Therapeutics Inc (NASDAQ:OCRX) in its latest 13F filing.

On the next page, we will take a closer look at two energy penny stocks and one tech penny stock that have captured the attention of smart money investors.

EXCO Resources Inc (NYSE:XCO)‘s stock has fluctuated between $0.51 and $1.94 over the past 52 weeks. A drop in oil prices led to the company’s revenue declining steadily throughout the past eight quarters, resulting in a drop in stock price. Last month, EXCO Resources Inc (NYSE:XCO) received a continued listing standard notice from the New York Stock Exchange due to a low bid price. The company said it was analyzing its options, including a reverse stock split and measures to improve liquidity such as issuance of more debt and a sale of its properties in South Texas. At the end of 2016, there were 12 funds in our database long Exco Resources, up by one over the quarter. However, the aggregate value of those funds’ positions slid to $103.13 million from $130.82 million and represented 42% of the company’s outstanding stock. Among those funds was Howard Marks‘ Oaktree Capital, which owned 30.77 million shares of EXCO Resources Inc (NYSE:XCO) at the end of 2016.

Quantum Corp (NYSE:QTM), a company engaged in providing data storage, archive and protection solutions, was owned by 16 funds tracked by Insider Monkey heading into 2017. Those funds had amassed $39.42 million worth of its shares as of the end of December, down from $42.89 million worth of stock held by 15 funds a quarter earlier. Over the last year, Quantum Corp (NYSE:QTM)’s stock has advanced by almost 60% as the company managed to post better-than-expected earnings and revenue in each of the last four quarters. During the fourth quarter, Jeffrey Smith’s Starboard Value, one of the 140 Biggest and Most Famous Activist Hedge Funds, cut its stake in Quantum Corp (NYSE:QTM) by 11.45 million shares to 7.65 million shares.

Finally, the most popular penny stock among the investors we track is Cobalt International Energy, Inc. (NYSE:CIE), in which 18 funds held long positions at the end of 2016, unchanged over the quarter. The total value of their holdings dropped to $190.35 million from $280.70 million and represented some 35% of its outstanding stock. Clint Carlson’s Carlson Capital disclosed ownership of 28.67 million shares of Cobalt International Energy, Inc. (NYSE:CIE) in its latest 13F filing. A year ago, Cobalt’s stock was trading north of $3 per share, but has slid into penny stock territory amid weaker-than-expected results. Last year, Cobalt was under investigation by the U.S. Justice Department over its Angola operations. It also failed to sell a 40% stake in two offshore oil blocks in the same country to the state company Sonangol for a proposed $1.75 billion. Earlier this week, Cobalt International Energy, Inc. (NYSE:CIE) said it would have to delay the release of its fourth-quarter and full-year results.

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