We recently published a list of 13 Best Canadian Penny Stocks to Invest in Now In this article, we are going to take a look at where NexGen Energy Ltd. (NYSE:NXE) stands against other best Canadian penny stocks to invest in now.
We define penny stocks as shares trading under $5.00, which usually fall into the small cap category. As illustrated by the performance of thematic ETFs, the small cap factor, which performed well historically, fell out of favor sometime in the mid-2010s and has kept underperforming ever since. The 2023-2024 period brought even stronger underperformance of penny stocks, as the proliferation of the AI trend created disproportionate opportunities across the market, favoring only a handful of large capitalization big tech names. This was an important factor in explaining the difference in cross-country stock market returns as well – for example, the Canadian stock market has largely moved in sync or even occasionally outperformed the US market during the first decade of the century, until a noticeable decoupling took place in the early 2010s. Besides lagging on productivity improvement and different monetary policies, the size factor clearly played a role, as Canada lacks big tech players to capitalize on the rapid technological advancements that took place during the 2010s.
READ ALSO: 10 Best Canadian Stocks to Buy According to Billionaires
As a result, both the Canadian and small-size factors have found themselves at multi-year lows relative to the US stock market at the end of calendar 2024. While many investors make reactive decisions and avoid stocks with historical underperformance, the smart way to make money is to often take contrarian bets based on forward-looking signals that may suggest a reversal in the previous tendencies. The main questions to answer in this article are the following: will the small cap factor and Canada stocks become favored again and able to outperform their large cap and US counterparts?
When discussing the small factor, we get to see that its recent 2023-2024 underperformance was accelerated by rising stock market concentration to record levels. External data suggests that the 2024 US stock market concentration, as measured by the share of the top 10 largest companies in the total market, was at a record 38%, significantly above the historical average of around 24%. This means that most of the stock market returns were driven by a handful of companies favored by AI-related FOMO which overstretched their market valuations. In a scenario where large caps perform well, the small caps fall out of favor automatically, by setup.
History shows, however, that concentration tends to revert to the mean – this is already happening in 2025 as the Magnificent 7 ETF, which includes the largest big tech stocks, has significantly underperformed the broad market, decreasing its concentration. Furthermore, the small cap factor tends to perform well when the economy is growing, interest rates are low and capital moves freely to riskier assets – while we aren’t there yet, the stock market is a forward-looking animal that tends to anticipate economic developments 6-12 months ahead. We believe small caps and particularly penny stocks may start performing well in anticipation of lower interest rates and better economic conditions in 2026 and beyond, past the current tariff turmoil and other uncertainties induced by rapid policy changes brought by the new US administration.
There are reasons to expect an improvement in the performance of Canadian stocks relative to the US market. First, the Trump Tariff Turmoil has much worse potential implications for the US than it does for Canada – the US has put its entire export/import base at risk of retaliation, while Canada only risks tariffs for its US exports (and likely at a lower overall tariff rate). Second, the breaking of economic and ideological ties with the new US administration could lead to an overall mobilization of the Canadian people and political class, and drive several positive developments: (1) substitution of US consumer brands with local Canadian brands; (2) accelerating investments into the mining/energy infrastructure and pipelines to create alternative paths and markets for the main Canadian product, which is commodities. Both (1) and (2) would have positive implications for the entire Canadian stock market and economy.
The main takeaway for readers is that combining the small size factor with the Canadian factor could lead to substantial outperformance relative to the US market which witnesses heightened uncertainty and negative returns year-to-date. In such a scenario, Canadian penny stocks appear the ideal securities to pick for a bet on both factors, which would be contrarian to the trends we witnessed in the last 10 years.
Our Methodology
To compile our list of best Canadian penny stocks we use a stock screener to filter for Canadian companies trading in the US with a stock price below $5.00. Then we compared the list with our proprietary Q4 2024 database of hedge funds’ ownership and included in the article the top 13 stocks with the largest number of hedge funds owning the stock, ranked in ascending order.
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).
A miner in a hard hat and apron holding a piece of uranium ore in the Athabasca Basin, Saskatchewan.
NexGen Energy Ltd. (NYSE:NXE)
Closing Stock Price as of April 17th: $4.74
Number of Hedge Fund Holders: 37
NexGen Energy Ltd. (NYSE:NXE) is an uranium exploration and development company focused on the Athabasca Basin in Saskatchewan. The company’s flagship “Rook I Project” is forecasted to become the world’s largest low-cost uranium mine, with potential annual production of up to 30 million pounds of U₃O₈, used in nuclear fuel and military applications. NXE is also advancing exploration in other regions, aiming to expand its resource base and further boost its competitive advantage.
NexGen Energy Ltd. (NYSE:NXE) has achieved significant milestones in 2024, including securing its first uranium sales contracts with US utilities, completing the Federal technical review for Rook I, and receiving regulatory approval. The company maintains a strong financial position with C$477 million in cash at year-end, sufficient to cover 18 months of post-approval construction activities. Additionally, expressions of interest from lenders have increased to approximately $1.7 billion, demonstrating the project’s strong financeable nature.
A transformational development has been the discovery at Patterson Corridor East (PCE), located just 3.5 kilometers from the Arrow project, which has shown characteristics similar to Arrow and potentially exceeds it in terms of size and ultra-high-grade mineralization at the same stage of drilling. NexGen Energy Ltd. (NYSE:NXE)’s strategic position is further strengthened by its industry-leading procurement metrics, with 96% of “Rook I” site procurement made through community partners during 2024. Looking ahead, NXE is positioned to capitalize on the growing demand for uranium, particularly from Western utilities seeking to diversify their supply sources away from Eastern countries.
Overall, NXE ranks 1st on our list of best Canadian penny stocks to invest in now. While we acknowledge the potential of NXE to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than NXE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
