On December 23, CNBC reported that Julie Biel, Chief Market Strategist at Kayne Anderson Rudnick, joined Fast Money to discuss where the Russell 2000 may be headed and what investors can expect from small-cap stocks in 2026. Biel said she remains positive about small caps. She noted that they are more sensitive to economic conditions and are likely to benefit from lower interest rates as small-cap companies tend to borrow on a variable interest rate market.
For the past 18 months, Biel has been saying that small caps will start to outperform once the earnings really come through. She noted that some small caps did outperform but the gains are mostly driven by lower-quality companies that have no earnings, such as those in biotech and quantum-related areas.
According to Biel, this trend has made it difficult for active managers to beat their benchmarks. She indicated that it has been frustrating for those waiting for high-quality small caps to be rewarded.
Despite this, Biel said that earnings growth is what truly matters over the long term. She said that the overall setup for 2026 looks more favorable for small-cap stocks compared to mid-cap and large-cap stocks, and even the Magnificent 7. As a result, she thinks small caps could be a good place for investors to look.
With this background in mind, let’s take a look at the 10 best US penny stocks to buy.
Our Methodology
To compile our list of the 10 best US penny stocks to buy, we used the Finviz stock screener. We sorted our results based on market capitalization and picked the top 30 American stocks with a share price of under $5 as of January 2, 2026. Next, we focused on the top 10 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2025 database of 978 elite hedge funds. Finally, the 10 best US penny stocks to buy were ranked in ascending order based on the number of hedge funds holding stakes in them as of Q3 2025.
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 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
10 Best US Penny Stocks to Buy
10. Plug Power Inc. (NASDAQ:PLUG)
Share Price: $2.23
Number of Hedge Fund Holders: 27
Plug Power Inc. (NASDAQ:PLUG) is one of the best US penny stocks to buy. On December 31, Clear Street upgraded its rating on Plug Power Inc. (NASDAQ:PLUG) from Hold to Buy but also lowered its price target from $3.50 to $3.00.
The research firm that the stock now offers “attractive upside potential” from the current stock price. Clear Street noted that the opportunity is now more compelling than when Plug Power Inc. (NASDAQ:PLUG) was trading at around $4.00 in early October.
Clear Street cut the price target mainly because of dilution from the company’s convertible refinancing, which was completed in late November. The firm also applied a slightly lower valuation multiple to its 2027 sales forecast. The new price target of $3.00 is based on a valuation of 4 times expected enterprise value to sales, using Clear Street’s 2027 sales estimate of $1.07 billion.
According to the research firm, this valuation is still slightly higher than Plug Power Inc.’s (NASDAQ:PLUG) three-year historical average. Clear Street’s analysis suggests that this premium valuation reflects expected cost savings, a lower annual cash burn rate, and improving opportunities for European refinery electrolyzers.
Previously, on December 18, Craig-Hallum also reiterated a Buy rating on Plug Power Inc. (NASDAQ:PLUG). Overall, the 12-month median price target of $2.50 set by analysts indicates a potential upside of 13% from the current stock price.
Plug Power Inc. (NASDAQ:PLUG) is a global company specializing in hydrogen fuel-supply solutions. It provides electrolyzers, liquid hydrogen, fuel cell systems, storage tanks, and fueling infrastructure to various industries, including material handling, industrial applications, and energy producers.
9. Taboola.com Ltd. (NASDAQ:TBLA)
Share Price: $4.43
Number of Hedge Fund Holders: 29
Taboola.com Ltd. (NASDAQ:TBLA) is one of the best US penny stocks to buy. On December 19, Rosenblatt initiated coverage on Taboola.com Ltd. (NASDAQ:TBLA), giving the stock a Buy rating and setting the price target at $6. The research firm said that Taboola.com Ltd.’s (NASDAQ:TBLA) stock has been “mis-characterized as a secular loser from Google AI-search.” This has impacted the stock’s performance over the past year.
Rosenblatt pointed out that the company has made solid progress after its merger with Connecity and its strategic equity partnership with Yahoo. According to the research firm, these efforts have helped position Taboola.com Ltd. (NASDAQ:TBLA) for future growth because of its early adoption of AI for direct marketing across a network of more than 9,000 publishers. Rosenblatt also pointed to improvements in the company’s ad system, Realize, which launched at the start of 2025. The firm said that this has expanded the company’s appeal to marketers.
Also on December 19, Benchmark reiterated its Buy rating on Taboola.com Ltd. (NASDAQ:TBLA) with a price target of $4.50. Benchmark is confident about the company’s core native advertising business, which it sees as stable. The firm added that Taboola.com Ltd.’s (NASDAQ:TBLA) management expects low single-digit percentage revenue growth in 2026 for the company’s Native business, excluding traffic acquisition costs.
Benchmark also highlighted Realize as a key platform update that is contributing to improved the revenue outlook for the company.
Taboola.com Ltd. (NASDAQ:TBLA) is a performance advertising technology company that powers recommendations for the open web to help people explore things they might like. The company helps digital properties, including websites, devices, and mobile apps, to drive monetization and user engagement.
