11 Best Penny Stocks To Buy According To Hedge Funds

Published October 15, 2021 at 8:41 am EDT Updated August 19, 2026 at 5:24 am EDT

In this article, we discuss the 11 best penny stocks to buy according to hedge funds.

Hedge funds do not normally invest in penny stocks, primarily because of the risk associated with investing in companies with weak fundamentals – penny stocks are “penny” stocks for a reason – but also due to the limited information around these equities. However, even hedge funds acknowledge the incredible returns that penny stocks can offer to those who are willing to put the time to research small companies and figure out their potential before the rest of the market. For example, over the past year, the Invesco S&P SmallCap Info Tech ETF (PSCT) has provided a 1-year trailing total return of more than 67%.

This does not compare favorably with the performance of the Russell 1000 Index over the period. The former has outperformed the latter by more than 30 percentage points during the period. Apart from tech-related penny offerings, other high growth domains like biotech and space have also witnessed many success stories. Some of this success can be attributed to the interest in growth stocks by retail investors. These investors have come to command great sway over the overall market dynamics this year.

Some of the best stocks in the high growth domain presently include Apple Inc. (NASDAQ:AAPL), Advanced Micro Devices, Inc. (NASDAQ:AMD), Tesla, Inc. (NASDAQ:TSLA), Alibaba Group Holding Limited (NYSE:BABA), and NVIDIA Corporation (NASDAQ:NVDA), among others. For those who cannot afford to invest in these relatively expensive options, there are several penny stocks that offer better value for money with the same explosive growth potential. Even hedge funds acknowledge their value. Some of these are discussed below.

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Our Methodology

With this context in mind, here is our list of the 11 best penny stocks to buy according to hedge funds. The list is compiled according to the number of hedge funds having stakes in each stock. Data from the 873 hedge funds tracked by Insider Monkey was used for this purpose.

Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Best Penny Stocks To Buy According To Hedge Funds

11. eMagin Corporation (NYSE:EMAN)

Number of Hedge Fund Holders: 6

The jump in semiconductor prices this year has helped chip stocks reach new highs. eMagin Corporation (NYSE:EMAN) is one such firm. It is placed eleventh on our list of 11 best penny stocks to buy according to hedge funds. The company beat market expectations on earnings per share in the second quarter by $0.03. The firm has also recently finalized a $33 million contract from the US Department of Defense for the signature microdisplays it makes and sells. The company expects to increase its workforce by 10% for the three-year contract.

HC Wainwright analyst Kevin Dede is bullish on the stock, giving it a Buy rating and a price target of $5 earlier this year. eMagin Corporation is also expected to benefit from the increased government spending on American chip firms as part of a new plan to compete with Asian dominance in this regard.

At the end of the second quarter of 2021, 6 hedge funds in the database of Insider Monkey held stakes worth $4 million in eMagin Corporation, down from 9 in the preceding quarter worth $5 million.

Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Brevan Howard is a leading shareholder in eMagin Corporation with 839,455 shares worth more than $2.9 million.

Just like Apple Inc., Advanced Micro Devices, Inc., Tesla, Inc., Alibaba Group Holding Limited, and NVIDIA Corporation, eMagin Corporation is one of the stocks that hedge funds have their eyes on.

10. Ideanomics, Inc. (NASDAQ:IDEX)

Number of Hedge Fund Holders: 6

Electric cars have taken the world by storm in the past few years, driving policy changes at the highest level as fossil fuel-based alternatives go out of fashion. Ideanomics, Inc. (NASDAQ:IDEX) is a company that has taken advantage of this boom, building a business that drives the adoption of EVs by offering fintech products in this regard. The company beat market expectations on revenue in the second quarter by over $2 million and reported a 606% year-on-year increase in revenue during the period.

Ideanomics, Inc. is ranked tenth on our list of 11 best penny stocks to buy according to hedge funds. Roth Capital analyst Craig Irwin maintained a Buy rating on the stock in early June with a price target of $7.

At the end of the second quarter of 2021, 6 hedge funds in the database of Insider Monkey held stakes worth $34 million in Ideanomics, Inc., down from 7 in the preceding quarter worth $20 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Ideanomics, Inc. with 11 million shares worth more than $32 million.

In addition to Apple Inc., Advanced Micro Devices, Inc., Tesla, Inc., Alibaba Group Holding Limited, and NVIDIA Corporation, Ideanomics, Inc. is one of the stocks that is attracting the attention of elite investors.

9. Exela Technologies, Inc. (NASDAQ:XELA)

Number of Hedge Fund Holders: 7

Investment advisors like B Riley and Cantor Fitzgerald have positive ratings on Exela Technologies, Inc. (NASDAQ:XELA) because the company benefits from increased spending on digital business process services in the post-pandemic economy. One of the premier products of the firm, Dry Sign, an electronic signature solution, was recently launched in the UK following the success of the product in North American and Indian markets. The launch highlights the expanding international operations of the company.

Exela Technologies, Inc. beat market expectations on earnings per share in the second quarter. It is placed ninth on our list of 11 best penny stocks to buy according to hedge funds.

At the end of the second quarter of 2021, 7 hedge funds in the database of Insider Monkey held stakes worth $7.5 million in Exela Technologies, Inc., down from 8 in the previous quarter worth $10 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Luminus Management is a leading shareholder in Exela Technologies, Inc. with 1.3 million shares worth more than $3 million.

Along with Apple Inc., Advanced Micro Devices, Inc., Tesla, Inc., Alibaba Group Holding Limited, and NVIDIA Corporation, Exela Technologies, Inc. is one of the stocks on the radar of growth investors.

8. Outlook Therapeutics, Inc. (NASDAQ:OTLK)

Number of Hedge Fund Holders: 7

Outlook Therapeutics, Inc. (NASDAQ:OTLK) is ranked eighth on our list of 11 best penny stocks to buy according to hedge funds. HC Wainwright analyst Douglas Tsao in early August reiterated a Buy rating on the stock and boosted the price target to $6 from $5. The upgrade followed strong results from a drug study showing the statistically significant superiority of Lytenava over Lucentis, treatments for vision impairment. The company joined the Russell 2000 Index in June this year.

Outlook Therapeutics, Inc. shares have returned over 150% to investors over the past twelve months. The share price climbed close to 30% on August 3 alone due to the positive results of a late-stage wet AMD bevacizumab study.

At the end of the second quarter of 2021, 7 hedge funds in the database of Insider Monkey held stakes worth $2.3 million in Outlook Therapeutics, Inc., down from 11 the preceding quarter worth $5.2 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm OrbiMed Advisors is a leading shareholder in Outlook Therapeutics, Inc. with 5.1 million shares worth more than $6.7 million.

Apple Inc., Advanced Micro Devices, Inc., Tesla, Inc., Alibaba Group Holding Limited, and NVIDIA Corporation are some of the top growth options on the market, along with Outlook Therapeutics, Inc..

7. Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX)

Number of Hedge Fund Holders: 8

A drug developed by Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) to treat cystic fibrosis patients was recently given Fast Track status by the drug authority in the US. The drug is presently in Phase 2 clinical trials. Swiss pharma giant Roche Holding holds a 5% stake in the company through a subsidiary, according to a regulatory filing submitted in June. This indicates the growth potential of the pipeline drugs of the company. It is placed seventh on our list of 11 best penny stocks to buy according to hedge funds.

Eloxx Pharmaceuticals, Inc. reported in late August that it had cash equivalents of more than $56 million. The funds are expected to fund the operations of the company well into 2023. Investment advisory Mizuho has a Buy rating on the stock with a price target of $3.10.

At the end of the second quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $10 million in Eloxx Pharmaceuticals, Inc..

Apple Inc., Advanced Micro Devices, Inc., Tesla, Inc., Alibaba Group Holding Limited, and NVIDIA Corporation are some of the top catalyst stocks on the market, just like Eloxx Pharmaceuticals, Inc..

6. Trivago N.V. (NASDAQ:TRVG)

Number of Hedge Fund Holders: 10

The share price of Trivago N.V. (NASDAQ:TRVG) stock has climbed 79% in the past year, evidence of the economic recovery for the tourism industry following a torrid 2020. The hotel and accommodation search platform of the firm was responsible for the lion’s share of the €95 million in revenue of the firm in the second quarter of 2021. It is ranked sixth on our list of 11 best penny stocks to buy according to hedge funds. Strong booking trends indicate the stock has room to climb higher.

Investment advisory Mizuho reiterated a Buy rating on Trivago N.V. stock in early August with a price target of $3.60. James Lee, an analyst at the advisory, noted that the COVID recovery was moving in the right direction and the management of the firm expected travel activity to normalize soon.

At the end of the second quarter of 2021, 10 hedge funds in the database of Insider Monkey held stakes worth $67 million in Trivago N.V., the same as in the preceding quarter worth $84 million.

Boston-based investment firm PAR Capital Management is a leading shareholder in Trivago N.V. with 19 million shares worth more than $63 million.

5. Sesen Bio, Inc. (NASDAQ:SESN)

Number of Hedge Fund Holders: 10

Sesen Bio, Inc. (NASDAQ:SESN) has had a hot and cold year so far. The company, placed fifth on our list of 11 best penny stocks to buy according to hedge funds, saw share price fall heavily in August after the drug body in the US failed to approve Vicineum, a cancer drug therapy, developed by the firm. Following the unexpected setback, the company revealed a restructuring plan in September, reducing workforce and implementing cost-saving measures. The stock jumped more than 26% as a result.

Sesen Bio, Inc. reported cash and cash equivalents of more than $150 million at the end of the second quarter of 2021. The stock has now become a favorite of retail investors on internet platform Reddit, driving high volumes.

At the end of the second quarter of 2021, 10 hedge funds in the database of Insider Monkey held stakes worth $46 million in Sesen Bio, Inc., down from 11 in the preceding quarter worth $35 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Schonfeld Strategic Advisors is a leading shareholder in Sesen Bio, Inc. with 3.8 million shares worth more than $17 million.

4. Tellurian Inc. (NASDAQ:TELL)

Number of Hedge Fund Holders: 17

Tellurian Inc. (NASDAQ:TELL) is one of the few non-growth penny stocks in the hedge fund portfolio. The company beat market expectations on revenue in the second quarter by more than 10 million. During the period, the year-on-year quarterly revenue jumped 300%. The firm is ranked fourth on our list of 11 best penny stocks to buy according to hedge funds. There are several growth catalysts for the stock in the long term, including two recent LNG agreements with Shell and Total Energies.

Tellurian Inc. stock has returned more than 295% to investors in the past twelve months. B Riley analyst Liam Burke has a Buy rating on the stock with a price target of $8. Burke expects the firm to benefit from the growth of the LNG market in the coming months.

At the end of the second quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $103 million in Tellurian Inc., up from 12 in the previous quarter worth $28 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Tellurian Inc. with 7.2 million shares worth more than $33 million.

3. Amneal Pharmaceuticals, Inc. (NYSE:AMRX)

Number of Hedge Fund Holders: 17

Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is placed third on our list of 11 best penny stocks to buy according to hedge funds. In late August, the share price of the company jumped more than 18% after it announced positive results from a late-stage trial testing of IPX-203, a drug for patients with Parkinson’s disease. In addition to a strong drug pipeline, the firm also boasts solid financials. The company reported a 15% year-on-year increase in revenue in the second quarter earnings, beating estimates by close to $12 million.

In July, the FDA granted Amneal Pharmaceuticals, Inc. ANDA approval for a generic of TobraDex, a drug for patients with steroid-responsive inflammatory ocular conditions. The share price of the firm has jumped 30% in the last three months.

At the end of the second quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $53 million in Amneal Pharmaceuticals, Inc., up from 15 in the previous quarter worth $77 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Eversept Partners is a leading shareholder in Amneal Pharmaceuticals, Inc. with 5.6 million shares worth more than $28 million.

2. Verastem, Inc. (NASDAQ:VSTM)

Number of Hedge Fund Holders: 21

Verastem, Inc. (NASDAQ:VSTM) is another biotech penny stock that hedge funds love. It is ranked second on our list of 11 best penny stocks to buy according to hedge funds. The firm recently announced that it would be partnering with Amgen to evaluate the safety of a new drug for cancer patients. The share of the firm jumped more than 22% after the announcement. In the second quarter, the company beat market expectations on revenue by close to $0.5 million. Alliance Global Partners has a Buy rating on the stock with a $6 price target.

Investment advisory BTIG also has a Buy rating on Verastem, Inc. stock with a $8 price target. Analyst Robert Hazlett is covering the firm. It has a market cap of close to $500 million.

At the end of the second quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $241 million in Verastem, Inc., up from 12 in the preceding quarter worth $129 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based firm Baker Bros. Advisors is a leading shareholder in Verastem, Inc. with 21 million shares worth more than $87 million.

1. Transocean Ltd. (NYSE:RIG)

Number of Hedge Fund Holders: 27

The share price of Transocean Ltd. (NYSE:RIG) has jumped more than 300% in the past year. Interest in the stock has been soaring since the firm announced that it would be cutting greenhouse gas emissions intensity by 40% from 2019 levels by the end of this decade. It is placed first on our list of 11 best penny stocks to buy according to hedge funds. The firm was also recently awarded a $225 million contract for an ultra-deepwater drillship. The first phase of the project will begin next year.

Transocean Ltd. has a market cap of more than $2.4 billion and posted over $3 billion in revenue last year. The firm has become a darling of retail investors on Reddit after the announcement to cut greenhouse gas emissions.

At the end of the second quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth $313 million in Transocean Ltd., up from 20 in the preceding quarter worth $148 million.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Transocean Ltd. with 25 million shares worth more than $113 million.

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