In this article, we will look at the 11 Best Penny Stocks with the Highest Upside Potential.
On September 19, Morningstar released its research report on small-cap stocks as the sector started to rally. The small-cap stocks had largely underperformed the market for over a decade. However, the sector finally started to outperform the broader market in August, driven by technology and growth companies, particularly in the semiconductor industry.
The report highlighted that the small-cap rally differs from the overall market’s rise. For instance, in terms of the small caps, the industrial and financial sectors also played a big role in gains. The boost for small companies has come from two main factors, including the falling bond yields and expectations that the Federal Reserve will cut interest rates soon. Still, the strong US economy may pose challenges for small caps in the coming months.
Over the past decade, small caps have outperformed the market only twice. The first instance was in 2022 when the small caps dropped 18.5%, slightly outperforming the broader market’s 19.4% decline. Moreover, the last time small caps had a strong positive year beating the market was in 2016, rising 20.3% versus a 12.4% gain in the overall market.
The report looks at recent returns and notes that the small-cap segment is up 8% in the third quarter of 2025. This is slightly better than the 7.8% return for large-cap stocks and 3.9% for mid-caps. The technology sector has been the top contributor to small-cap gains this quarter, adding 2.2 percentage points to the small-cap index.
With that, let’s take a look at the 11 best penny stocks with the highest upside potential.
Stocks
Our Methodology
To curate the list of 11 best penny stocks with the highest upside potential, we used the Finviz Stock Screener, CNN, and Insider Monkey’s Q2 2025 database as our sources. Using the screener, we aggregated a list of penny stocks (trading below $5) for which analysts expect more than 25% upside. Next, we checked the upside potential from CNN and ranked the stocks in ascending order of this metric. We have also added the hedge fund sentiment around each stock. Please note that the data was recorded on September 26, 2025
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).
11 Best Penny Stocks with the Highest Upside Potential
11. Tuya Inc. (NYSE:TUYA)
Price: $2.52
Number of Hedge Fund Holders: 11
Analyst Upside Potential: 26.98%
Tuya Inc. (NYSE:TUYA) is one of the Best Penny Stocks to Buy with the Highest Upside Potential. Tuya Inc. (NYSE:TUYA) reported results for its fiscal second quarter of 2025 on August 26. The company reported growing its revenue by 9.35% year-over-year to reach $80.13 million. This topped Wall Street estimates by $1.69 million. Moreover, the EPS of $0.03 stayed in line with the expectations as well.
Management noted that the company was able to pull off these results amidst global trade uncertainties and supply chain challenges. The company achieved a 15% year-over-year revenue growth in H1 2025, with non-GAAP operating profit soaring about 127%. The fiscal second quarter revenue was driven by all the segments contributing to growth, with the PaaS segment being the largest contributor.
After the release, on August 27, Matt Ma from Jefferies raised the price target on Tuya Inc. (NYSE:TUYA) from $3.49 to $3.6, while reiterating a Buy rating on the stock. Overall, analyst’s 12-month price target represents a 26.98% upside from the current level.
Tuya Inc. (NYSE:TUYA) provides an AI cloud platform that integrates artificial intelligence with smart devices and commercial applications.
10. Clarivate Plc (NYSE:CLVT)
Price: $3.66
Number of Hedge Fund Holders: 33
Analyst Upside Potential: 36.61%
Clarivate Plc (NYSE:CLVT) is one of the Best Penny Stocks to Buy with the Highest Upside Potential. On September 11, Clarivate Plc (NYSE:CLVT) shared important business updates at the Goldman Sachs Communicopia + Technology Conference.
Management noted that they are focused on growing subscription revenue and are targeting AI across its products. The company aims for 90% of its revenue to come from subscriptions, which currently stands at 88%. Moreover, it is moving away from transactional sales, especially in Analytics & Guidance and Life Sciences, targeting a full transition by 2026. Management highlighted that the new digital products, like ProQuest e-books, support this shift.
Financially, Clarivate Plc (NYSE:CLVT)’s EBITDA margins are expected to shrink to 41% this year due to asset disposals. The company plans to complete a review of non-core assets by February 2026 to streamline its portfolio. Moreover, it also aims to reduce gross leverage from 4.3 times to below three.
Clarivate Plc (NYSE:CLVT) provides data, insights, analytics, and workflow solutions across Academia & Government, Intellectual Property, and Life Sciences & Healthcare.
