Earlier on March 18, Keith Fitz-Gerald, Fitz-Gerald Group CIO, joined ‘Power Lunch’ on CNBC to talk about how to make sense of the market and the recession versus the growth scare. Keith Fitzgerald has favored some big momentum names in recent years and is still very positive on these stocks, despite feeling frustrated by recent market action. He thinks this volatility partially comes from computers, algorithms, and equity beta. He advised the average investor to focus on fundamentals and pay attention to the insights of leaders like Jensen Huang as a way to move forward. Fitzgerald also revealed that he had been adding to all of his positions over the then-past week and planned to continue doing so, instead of joining the selloff stride. He explained that he invests with a 3, 4, or even 10-year horizon and believes that these companies are dramatically undervalued at present, even if that view is unpopular.

As the conversation turned to how Fitzgerald distinguishes between stocks that have further downside and those that are poised for a turnaround, he suggested slowing down buying rather than trying to perfectly time the bottom. Fitzgerald emphasized that he is more concerned with finding a good entry point than catching the absolute lowest price. He views deeper selloffs as more attractive opportunities, and recognizes that technical factors driven by algorithms are pushing prices. Fitzgerald agreed that the persisting sources of uncertainty remain, such as the ongoing confusion around Trump’s tariff policies and uncertainty in the AI sector. He noted that traders dislike uncertainty above all else because it prevents decisive actions.

However, Fitzgerald remains focused on long-term trends and themes, such as AI, automation, and full-service business models. As he evaluates opportunities, he looks for where this investment will flow, which companies are most likely to benefit, and whose customers are most engaged. For Fitzgerald, the focus remains on companies with high-quality leadership, strong products, and loyal customers.

With that acknowledged, we’re here with a list of the 10 most undervalued penny stocks to buy according to hedge funds.

Our Methodology

We used the Finviz stock screener to compile a list of cheap penny stocks that were trading under $5 and had a forward P/E ratio under 15. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 1000 elite money managers.

Note: All data was sourced on April 18.

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).

10 Most Undervalued Penny Stocks to Buy According to Hedge Funds

10. Coty Inc. (NYSE:COTY)

Share Price as of April 18: $4.73

Forward P/E ratio as of April 18: 8.6

Number of Hedge Fund Holders: 28

Coty Inc. (NYSE:COTY) manufactures, markets, distributes, and sells beauty products. It operates through the Prestige and Consumer Beauty segments. It offers fragrance, color cosmetics, and skin & body care products. It also sells its products through third-party distributors.

In FQ2 2025, sales for the company’s Prestige Fragrances segment grew in the mid to high single digits due to the segment’s unique and valued nature of high-end scents. Coty is pursuing several strategies to further capitalize on its Prestige Fragrance business. Successful recent launches like Gucci Flora Orchid and ongoing growth within the BOSS brand exemplify this strategy. The BOSS brand has become Coty’s number one brand with high single-digit growth.

The company is also expanding the distribution of its Prestige fragrance brands in previously underserved markets, such as the introduction of Chloe in the US. Due to the current market headwinds, such as those in Asia travel retail and China, Coty Inc. (NYSE:COTY) has shifted resources towards more robust markets like the US and Europe. On April 1, RBC Capital analyst Nik Modi maintained a Buy rating on the stock with a $13 price target.

Meridian Hedged Equity Fund stated the following regarding Coty Inc. (NYSE:COTY) in its Q4 2024 investor letter:

“Coty Inc. (NYSE:COTY) is a global beauty company with a growing portfolio of prestige and consumer brands. We hold Coty for its transformation potential through strategic investments in brand development and expansion within high-growth beauty markets. Performance this quarter was impacted by broader retail headwinds, as distributors in the U.S., Australia, and Asian retail channels maintained cautious inventory positions. Weak sales in China further pressured results. Despite these challenges, management implemented cost-saving measures to protect margins while maintaining strategic growth initiatives. We anticipate sales momentum to reaccelerate, supported by holiday season performance and continued expansion of the prestige portfolio.”

9. Newell Brands Inc. (NASDAQ:NWL)

Share Price as of April 18: $4.7

Forward P/E ratio as of April 18: 6.35

Number of Hedge Fund Holders: 29

Newell Brands Inc. (NASDAQ:NWL) designs, manufactures, sources, and distributes consumer and commercial products. It operates in three segments: Home & Commercial Solutions, Learning & Development, and Outdoor & Recreation. It serves diverse customers, such as warehouse clubs, mass merchants, specialty retailers, as well as DTC channels.

The company’s Learning and Development segment delivered positive core sales growth in every single quarter throughout 2024. The preliminary outlook for 2025 projects another year of positive core sales growth for this division. This is due to the successful execution of the company’s strategic initiatives and the effectiveness of the operational changes, specifically within the Learning and Development business.

While the overall company experienced a 3.4% sales decline in 2024, the consistent positive performance of the Learning and Development segment demonstrates the potential of the new strategy and operating model to yield positive results. On March 11, Barclays analyst Lauren Lieberman maintained a Buy rating on Newell Brands Inc. (NASDAQ:NWL) and set a price target of $11.