We recently compiled a list of the 11 Best Fundamentally Strong Penny Stocks to Buy Now. In this article, we are going to take a look at where FutureFuel Corp. (NYSE:FF) stands against the other fundamentally strong penny stocks.
Fundamentally strong penny stocks can represent highly attractive investment opportunities, primarily because they tend to be underfollowed companies operating outside the radar of most institutional investors and prominent sell-side analysts. Due to limited coverage, these stocks often remain hidden gems with significant untapped potential, making them ideal candidates for investors seeking outsized returns through diligent research and stock picking. Unlike speculative penny stocks, those supported by solid financial fundamentals – such as solid revenue growth, positive profitability, manageable debt levels, and robust performance even during economic slowdowns – indicate higher quality and reduced downside risk. Research consistently suggests that investing in undervalued, fundamentally strong small-cap or micro-cap (which are usually penny stocks) companies can generate superior long-term performance, largely because the market eventually recognizes and appropriately values their underlying quality.
READ ALSO: 12 Best Fundamental Stocks to Buy Now
While fundamentally strong penny stocks can offer compelling upside, exposure to them should be carefully timed, as their performance tends to be cyclical and highly sensitive to broader market sentiment. Historically, penny stocks have outperformed during periods of economic recovery, early bull markets, and risk-on environments. In contrast, during times of heightened volatility, tightening monetary policy, or flight-to-safety phases, these stocks often underperform due to their perceived risk and lower liquidity. That’s exactly what has been happening in the last 2 months since the inauguration of the new US administration – the small cap sector (as proxied by ETFs) has reached a new 5-year low on a relative basis vs. the broad market in March 2025 as the Trump 2.0 tariff turmoil has caused significant declines in valuations. Even the Federal Reserve Chair Jerome Powell recognizes the unstable outlook as he used the word “uncertainty” 16 times in his press conference last week.
As the reputable Yardeni Research boutique has put it,
“Markets continue to suggest that economic growth outside of the US is increasingly likely to improve while downside risks to US growth are rising.”
As a result, US stock valuation multiples are falling closer to their international counterparts. We believe this evolution has created opportunities for the most courageous investors willing to take a contrarian stance – the stock valuations suggest weakness, all while economic indicators reveal that the backbone of the US economy is still strong. For reference, the labor market remains strong, with no meaningful spike in jobless claims, which reinforces our belief that consumers remain strong. Likewise, business activity (as proxied by PMI) remained elevated in March, and employment surged. With a healthy consumer and industrial sector, the odds are that the upcoming months will not bring any meaningful economic slowdown, which is now becoming increasingly anticipated by analysts.
With that being said, the key takeaway for readers is that small caps, and particularly penny stocks, could become favored again, as the new batch of economic indicators suggests a strong economy going forward. Moreover, the recent 10% correction in the US stock market valuations offers more affordable opportunities to seek entry points. In this context, we believe that fundamentally strong penny stocks should be preferred by investors, as their higher quality and resilience raise the odds that they will deliver a satisfactory performance and outperform the broad market.
An industrial processing facility, its chimneys and machines producing specialty chemicals.
Our Methodology
To find fundamentally strong penny stocks we used Finviz to filter for stocks with a stock price below $5.00, with at least 10% revenue growth in the last 3 years. Then we manually selected companies with stable businesses, established product lines, and a demonstrated history of performing well even during economic slowdowns. Finally, we compare the list with our Q4 2024 proprietary database of hedge funds’ ownership and include in the article the top 11 stocks with the largest number of hedge funds that own the stock.
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).
FutureFuel Corp. (NYSE:FF)
Number of Hedge Fund Holders: 14
FutureFuel Corp. (NYSE:FF) is a US-based manufacturer of diversified chemical products and biofuels. The company operates through two segments: Chemicals and Biofuels. The Chemicals segment produces custom and performance chemicals used in various applications such as agrochemicals, detergents, and polymers, serving both contract and proprietary customers. The Biofuels segment primarily focuses on the production and sale of biodiesel and related co-products, utilizing feedstocks such as vegetable oils and animal fats. FF’s operations are vertically integrated, with manufacturing facilities supporting both segments.
FutureFuel Corp. (NYSE:FF) experienced significant financial challenges in Q3 2024, reporting a net loss of $1.2 million or $0.03 per diluted share, compared to a net income of $2.8 million in the same period of 2023. The company’s revenues declined substantially by 56% to $51.1 million compared to $116.8 million in the previous year. This decline was primarily attributed to lower sales volumes in the biofuel segment, amounting to $41,015, largely due to production issues and equipment supplier delays that affected biodiesel inventory building. The chemical segment faced a market-driven slowdown with increased margin pressure due to sluggish demand in end-use markets, while the biodiesel segment experienced margin and RIN pricing contraction.
Despite these challenges, FutureFuel Corp. (NYSE:FF) maintained a strong cash position with $133,398 in cash and cash equivalents as of September 30, 2024, though this was lower than the $219,444 reported at the end of 2023. Looking forward, the company anticipates potential improvement once there is more clarity around the IRA 45Z or Clean Fuel Production Credit. Notably, within the chemical segment, there are encouraging signs with robust activities continuing with key customers on future business development programs as the company invests to support future growth. With 14 hedge funds owning the stock, FF is one of the best fundamental stocks to buy now.
Overall FF ranks 9th on our list of the 11 best fundamentally strong penny stocks to buy now. While we acknowledge the potential of FF as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
