Five Penny Stocks To Buy Based on Smart Money Sentiment

No doubt, penny stocks are for investors with a greater than average risk appetite, but considering their inexpensiveness and the possibility of towering returns, if any of these companies make it big, an average retail investor should at least consider them. In order to further increase the chances of success, we have picked out five penny stocks that hedge fund managers are collectively the most bullish on. While the list has many fallen stars in it, that doesn’t mean that these companies can’t make a turnaround. In fact, this limits the further downside as these companies come in the oversold territory.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 Orexigen Therapeutics, Inc. (NASDAQ:OREX)

– Investors with Long Positions (as of December 31): 12

– Aggregate Value of Investors’ Holdings (as of December 31): $31.02 Million

While the total number of hedge funds holding shares of Orexigen Therapeutics, Inc. (NASDAQ:OREX) dropped by seven during the October-December period, the subsequent aggregate value of their investments slid by about $18 million. The $91.89 million obesity drug maker has seen its stock price crater by over 90% over the last 12 months. The main reason for this being the FDA’s ruling against the company’s lead drug candidate Contrave, as regulatory authorities believed that the data was incomplete and the analysis immature. The cost of the new study is estimated at $210 million and, if undertaken, the results are not expected before 2022. Robert Pohly’s Samln Capital holds about 6.16 million shares of Orexigen Therapeutics, Inc. (NASDAQ:OREX) valued at $10.60 million as of the end of December.

 

#4 Quantum Corp (NYSE:QTM)

– Investors with Long Positions (as of December 31): 14

– Aggregate Value of Investors’ Holdings (as of December 31): $62.59 Million

The $163 million technology company engaged in providing storing and protection of data in physical, virtual and cloud environments might have seen the total number of hedgies bullish on it fall by three during the fourth trimester, but the aggregate value of their positions rose by about 18% as the stock gained 19% during that period. However, it has tumbled by 38% so far this year. In its financial results for the third fiscal quarter ended December 31, Quantum Corp (NYSE:QTM) missed both the top and bottom lines and provided a soft guidance for the next quarter. Furthermore, the company’s CFO Linda Breard has resigned. Starboard Value, managed by Jeffrey Smith, holds more than 25.69 million shares of Quantum Corp (NYSE:QTM) valued at $23.9 million, according to its last 13F filing.

 

#3 Antares Pharma Inc (NASDAQ:ATRS)

– Investors with Long Positions (as of December 31): 14

– Aggregate Value of Investors’ Holdings (as of December 31): $43.92 Million

Over the past twelve months Antares Pharma Inc (NASDAQ:ATRS)’s stock has lost more than 67% of its value. While the number of investors holding the healthcare company in their portfolios remained unchanged during the fourth quarter, the aggregate value of their holdings fell by 32%. For the fourth quarter, the manufacturer of self-administered parenteral pharmaceutical products delivered a net loss of $0.04 per share, which was $0.01 below analysts’ expectations. Similarly, quarterly revenue of $11.8 million missed the estmates by $0.73 million. Steven Boyd‘s Armstice Capital and Kevin Kotler‘s Broadfin Capital hold 13.24 million and 11.48 million shares of Antares Pharma Inc (NASDAQ:ATRS) respectively, as of the end of 2015.

 

#2 Ultra Petroleum Corp. (NYSE:UPL)

– Investors with Long Positions (as of December 31): 15

– Aggregate Value of Investors’ Holdings (as of December 31): $14.19 Million

The $99.73 million oil and gas company also saw a loss of interest from hedge fund managers during the fourth quarter as the number of funds long the stock fell by three, while the total value of their investments fell by about 58%. Given the prevalent low commodity prices in the energy sector the dwindling enthusiasm is hardly a surprise. Shares of Ultra Petroleum Corp. (NYSE:UPL) have cratered by nearly 73% so far this year,  despite registering a boost this month following a waiver agreement with its lenders, which allowed the debt restructuring costs to continue. Elm Ridge Capital, which is led by Ron Gutfleish holds more than 1.8 million shares of Ultra Petroleum Corp. (NYSE:UPL) after a 13% increase of the stake during the fourth quarter.

 

#1 Cumulus Media Inc (NASDAQ:CMLS)

– Investors with Long Positions (as of December 31): 16

– Aggregate Value of Investors’ Holdings (as of December 31): $13.33 Million

During the fourth quarter, the total number of hedge funds invested in Cumulus Media Inc (NASDAQ:CMLS) dropped by five and the aggregate value of their investments slid by about 51%. Even though the stock price of the radio broadcaster is up by a little over 15% year-to-date, it has plunged by  87% over the last 12 months. In its recently released fourth-quarter financial results, Cumulus Media Inc (NASDAQ:CMLS) beat both the top and bottom line estimates. Both debt and massive employee turnover had been major problems for the company in the past and is something that the new CEO is addressing as he continues to engineer a turnaround for the company. Jonathan Savitz‘s Greywolf Capital Management held more than 6.86 million shares of Cumulus Media Inc (NASDAQ:CMLS) at the end of December.

Disclosure: None