In this article, we discuss the 10 pump and dump stocks hedge funds like.
The influx of retail investors on the stock market in recent months and the rise of social media speculation around meme stocks has given strong momentum to pump and dump schemes. This is a phenomenon not limited to just the United States but spread across the world. On August 11, the Singapore police warned traders of “a resurgence in pump and dump schemes” after seven people lost more than $1 million through investments in a publicly-traded equity. In the US, legendary investors like Mario Gabelli have raised similar warnings.
To understand pump and dump schemes, a small introduction to penny stocks is also important. Penny stocks are more popular than ever, enticing investors with low entry costs and the possibility of large financial gains. Stories of shares increasing in value by more than 4,000% in a matter of months add to their allure, and new trading technology makes it easier than ever to enter the market. However, while penny stocks can be profitable, they also carry a high level of risk, which must be balanced with value investments.
Penny stocks are a form of investable asset. With such investments, a potential investor must exercise caution. Due to their extreme volatility and limited liquidity, the stocks are inherently speculative. These securities are commonly utilized in illegal activities. For instance, they are the targets of pump-and-dump schemes, in which stock promoters manipulate their prices. Since many penny stocks are traded over the counter, the stocks have little liquidity. The ideal moment to sell the shares might not always be available to the investor.
To illustrate the risk pump and dumps may carry, consider that on August 30, the US Department of Justice issued an arrest warrant for Frederick Sharp, the key accused in a pump and dump scheme and accused of $1 billion worth of illegal sales of stock in penny stock firms. Investors should be cautious of these schemes. For those who want to take advantage of the rise in interest around meme stocks, some shrewd investing techniques can also help turn a tidy profit. For example, following smart money is almost always a good choice.
However, these hedge funds, which managed close to $5.1 trillion in assets in 2022, are also pouring into pump and dump stocks to make some easy money. Some of these stocks are discussed in detail below. The advent of tech-enabled stock trading has transformed the stock market and made these schemes more mainstream.
It is important to clarify that stocks rise and fall over time based on their profitability and the expectations that investors may have over their future profitability. To be worth ten times its current price, a stock must demonstrate the significant future potential to the market. However, penny stocks, often the subject of pump and dump schemes, rarely exhibit this level of potential. They may spike from time to time, but they will not experience the kind of sustained increase that can make you wealthy.
Our Methodology
We scanned Insider Monkey’s database of 920 hedge funds’ holdings and picked 10 small stocks which have a high 52-week volatility and strong popularity among these funds. It’s important to clarify that calling these companies “pump and dump stocks” does not mean these firms don’t have any solid fundamentals or long-term growth catalysts. We call them pump and dump purely due to their volatility and high risk.
Photo by Austin Distel on Unsplash
10. Panbela Therapeutics, Inc. (NASDAQ:PBLA)
Number of Hedge Fund Holders: 1
52-Week Price Range ($): 0.10 – 2.40
Panbela Therapeutics, Inc. (NASDAQ:PBLA) is a clinical-stage biopharmaceutical company that focuses on developing disruptive therapeutics for the treatment of patients with cancer. On September 30, Panbela Therapeutics announced a public offering of 20 million shares of its common stock and warrants to purchase up to 30.2 million shares of its common stock at a purchase price of $0.30 per share.
At the end of the third quarter of 2022, 1 hedge fund in the database of Insider Monkey held stakes worth $588,000 in Panbela Therapeutics, Inc. (NASDAQ:PBLA), compared to 1 in the preceding quarter worth $7,000.
9. Kintara Therapeutics, Inc. (NASDAQ:KTRA)
Number of Hedge Fund Holders: 3
52-Week Price Range ($): 3.50 – 42.00
Kintara Therapeutics, Inc. (NASDAQ:KTRA) is a clinical-stage drug development company that focuses on developing and commercializing anti-cancer therapies to treat cancer patients. On August 3, Kintara Therapeutics unveiled that it has signed a direct equity purchase agreement for up to $20 million investment with a Chicago-based institutional investor – Lincoln Park Capital Fund. In this deal, Kintara will have the right, but not the obligation, to sell to LPC up to $20 million of its shares over the period of the three-year agreement.
At the end of the third quarter of 2022, 3 hedge funds in the database of Insider Monkey held stakes worth $96,000 in Kintara Therapeutics, Inc. (NASDAQ:KTRA), compared to 3 in the previous quarter worth $248,000.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Nantahala Capital Management is a leading shareholder in Kintara Therapeutics, Inc. (NASDAQ:KTRA) with 594,813 shares worth more than $64,000.
8. Baudax Bio, Inc. (NASDAQ:BXRX)
Number of Hedge Fund Holders: 3
52-Week Price Range ($): 0.12 – 13.65
Baudax Bio, Inc. (NASDAQ:BXRX) is a pharmaceutical company that develops and commercializes products for hospitals and other acute care settings. On August 11, Baudax Bio posted earnings for the second quarter of 2022, reporting losses per share of $1.05, beating market estimates by $0.22. The revenue over the period was $0.3 million, up 50.0% compared to the revenue over the same period last year.
At the end of the third quarter of 2022, 3 hedge funds in the database of Insider Monkey held stakes worth $173,000 in Baudax Bio, Inc. (NASDAQ:BXRX), compared to 4 in the previous quarter worth $703,000.
Among the hedge funds being tracked by Insider Monkey, New Jersey-based investment firm Sabby Capital is a leading shareholder in Baudax Bio, Inc. (NASDAQ:BXRX) with 439,220 shares worth more than $108,000.
7. NeuBase Therapeutics, Inc. (NASDAQ:NBSE)
Number of Hedge Fund Holders: 8
52-Week Price Range ($): 0.18 – 3.19
NeuBase Therapeutics, Inc. (NASDAQ:NBSE) is a pre-clinical-stage biopharmaceutical company that focuses on the development of therapies to treat rare genetic diseases and cancers caused by mutant genes. On October 21, NeuBase Therapeutics announced a research agreement with a group of top ten global healthcare companies. Healthcare will evaluate NeuBase’s PATrOL technology for three monogenic genetic diseases. The companies will collaborate on the evaluation of the drug candidates for three undisclosed indications.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Greenlight Capital is a leading shareholder in NeuBase Therapeutics, Inc. (NASDAQ:NBSE) with 2.7 million shares worth more than $1 million.
At the end of the third quarter of 2022, 8 hedge funds in the database of Insider Monkey held stakes worth $2.2 million in NeuBase Therapeutics, Inc. (NASDAQ:NBSE), compared to 6 in the previous quarter worth $6.7 million.
In its Q4 2020 investor letter, Greenlight Capital Fund, an asset management firm, highlighted a few stocks and NeuBase Therapeutics, Inc. (NASDAQ:NBSE) was one of them. Here is what the fund said:
“One already-public investment that we have never discussed is NeuBase Therapeutics, Inc. (NASDAQ:NBSE), which we invested in a couple years ago at an average price of $3.96. The combination of the frothy environment for companies with large addressable markets and NBSE’s own pre-clinical progress leaves us surprised that NBSE hasn’t yet joined the “story stock” party. NBSE is a “platform” company with a technology called PATrOL, which develops highly targeted therapies that increase, decrease or change the protein function of genes. By addressing all of the causal mechanisms underlying rare and common diseases – including cancer – PATrOL consolidates the capabilities of highly-valued gene silencing, gene editing and gene replacement companies in a single unified platform. NBSE’s emerging therapies also feature the best precision in engaging misbehaving genes of any technology, which is critical to eliminating “off-target” engagement with healthy genes elsewhere in the genome and to ensuring well-tolerated medicines. The company’s laboratory successes over the last couple years suggest that PATrOL could be a breakthrough technology that addresses many types of diseases. Like DNMR, the addressable market is immense. While there is a long path from here to products on the market, NBSE’s current market capitalization of less than $200 million prices in little chance of success. We think the risk-reward is asymmetrical. NBSE ended the year at $6.99.”
6. Workhorse Group Inc. (NASDAQ:WKHS)
Number of Hedge Fund Holders: 12
52-Week Price Range ($): 2.07 – 5.85
Workhorse Group Inc. (NASDAQ:WKHS) is a technology company that engages in the design, manufacture, and sale of zero-emission commercial vehicles in the United States. On September 13, Workhorse Group announced that it has won the patent for a land vehicle system which was filed on December 9, 2021. On September 7, Linamar Corporation revealed that it has secured a new eAxle system contract with Workhorse Group for commercial vehicle delivery trucks.
Among the hedge funds being tracked by Insider Monkey, New York-based firm DE. Shaw is a leading shareholder in Workhorse Group Inc. (NASDAQ:WKHS) with 911,603 shares worth more than $2.6 million.
At the end of the third quarter of 2022, 12 hedge funds in the database of Insider Monkey held stakes worth $5.1 million in Workhorse Group Inc. (NASDAQ:WKHS), compared to 10 in the previous quarter worth $4.3 million.
5. Vapotherm, Inc. (NYSE:VAPO)
Number of Hedge Fund Holders: 9
52-Week Price Range ($): 0.46 – 24.23
Vapotherm, Inc. (NYSE:VAPO) is a medical technology company that focuses on the development and commercialization of proprietary high-velocity therapy products used to treat patients of various ages suffering from respiratory distress in the United States and internationally. On July 28, Vapotherm moved all of its manufacturing operations from Exeter to Mexico. On November 2, Vapotherm posted earnings for the third quarter of 2022, reporting losses per share of $0.98, missing market estimates by $0.20. The revenue over the period was $13.5 million, a low 64.6% compared to the revenue over the same period last year and missing market estimates by $3.02 million.
On November 3, investment advisory Piper Sandler maintained an Underweight rating on Vapotherm, Inc. (NYSE:VAPO) stock and lowered the price target to $1 from $2. Analyst Jason Bednar issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Millennium Management is a leading shareholder in Vapotherm, Inc. (NYSE:VAPO) with 1.3 million shares worth more than $2.1 million.
4. UWM Holdings Corporation (NYSE:UWMC)
Number of Hedge Fund Holders: 17
52-Week Price Range ($): 2.84 – 7.16
UWM Holdings Corporation (NYSE:UWMC) engages in the residential mortgage lending business in the United States. On November 4, UWM Holdings Corporation posted earnings for the third quarter of 2022, reporting earnings per share of $0.16, beating market estimates by $0.18. The revenue over the period was $684.17 million, down 0.9% compared to the revenue over the same period last year and beating market estimates by $328.48 million.
On October 17, Barclays analyst Mark DeVries maintained an Equal Weight rating on UWM Holdings Corporation (NYSE:UWMC) stock and lowered the price target to $2.50 from $4, noting that near-term pressure on origination volumes was well understood, but the price target was dropped after taking a closer look at potential downside to 2023 origination volumes.
At the end of the third quarter of 2022, 17 hedge funds in the database of Insider Monkey held stakes worth $13.4 million in AMC Entertainment Holdings, Inc. (NYSE:AMC), compared to 15 in the preceding quarter worth $14.6 million.
3. Virgin Galactic Holdings, Inc. (NYSE:SPCE)
Number of Hedge Fund Holders: 12
52-Week Price Range ($): 4.11 – 16.56
Virgin Galactic Holdings, Inc. (NYSE:SPCE) focuses on the development, manufacture, and operation of spaceships and related technologies for conducting commercial human spaceflight and flying commercial research and development payloads into space. On November 3, Virgin Galactic Holdings revealed that it has agreed with Axiom Space, a commercial space company, to support microgravity research and training missions. The company will prepare an Axiom Space astronaut for an upcoming trip to orbit.
On November 7, Jefferies analyst Greg Konrad maintained a Buy rating on Virgin Galactic Holdings, Inc. (NYSE:SPCE) stock and lowered the target to $11 from $14, noting after the third quarter results, schedules have stabilized with plans for the first commercial spaceflight holding steady at second quarter 2023.
At the end of the third quarter of 2022, 12 hedge funds in the database of Insider Monkey held stakes worth $18.4 million in Virgin Galactic Holdings, Inc. (NYSE:SPCE), compared to 15 in the preceding quarter worth $43 million.
2. GameStop Corp. (NYSE:GME)
Number of Hedge Fund Holders: 13
52-Week Price Range ($): 19.40 – 50.03
GameStop Corp. (NYSE:GME) is a specialty retailer that provides games and entertainment products through its e-commerce properties and various stores in the United States, Canada, Australia, and Europe.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in GameStop Corp. (NYSE:GME) with 5.3 million shares worth more than $132 million.
In its Q2 2022 investor letter, Bireme Capital, an asset management firm, highlighted a few stocks and GameStop Corp. (NYSE:GME) was one of them. Here is what the fund said:
“Amazingly, GameStop Corp. (NYSE:GME) is one of our only short positions to not fall in 2022. The stock trades at an $11.5b market cap, exceeding its pre-pandemic peak by billions of dollars. This is even though revenue is down 30% from the peak, gross margins are down 1500 bps, and the company has generated a negative free cash outflow of $700m in the last four quarters (we had to double-check that number because it is so high).
Wall Street has consistently revised downward their estimates of Gamestop’s profitability, making its stock price stability in 2022 even more perplexing. Analysts currently estimate an EBITDA loss of around $400m, markedly worse than their estimates as of 2/3/22 of a loss of $60m. Their recently launched NFT marketplace will do nothing to fix their core business and comes about a year too late to be relevant in the NFT space. Instead, we see this as another example of a meme stock company hoping it can ape its way into a new business model, utilizing the popularity of the stock to drive new lines of business. We are not optimistic and think the $11.5b market cap drastically overestimates the capability of Gamestop to pivot into something more profitable. We find it unlikely that Gamestop books a GAAP profit ever again.”
1. AMC Entertainment Holdings, Inc. (NYSE:AMC)
Number of Hedge Fund Holders: 17
52-Week Price Range ($): 5.05 – 34.94
AMC Entertainment Holdings, Inc. (NYSE:AMC) engages in the theatrical exhibition business. On November 7, AMC Entertainment stated that it plans to launch Zoom Rooms at movie theaters in up to 17 US cities serving businesses with in-person events and meetings. The partnership with Zoom will begin in 2023.
On November 6, Citi analyst Jason Bazinet maintained a Sell rating on AMC Entertainment Holdings, Inc. (NYSE:AMA) stock and lowered the price target to $1.20 from $3.13, highlighting that the estimates are updated to reflect the latest US box office trends as well as latest debt refinancing.
At the end of the second quarter of 2022, 17 hedge funds in the database of Insider Monkey held stakes worth $21.98 million in AMC Entertainment Holdings, Inc. (NYSE:AMC), compared to 18 in the preceding quarter worth $120.6 million.
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Disclosure. None. 10 Pump and Dump Stocks Hedge Funds Like is originally published on Insider Monkey.
