On December 17, Lale Akoner, Global Market Analyst at eToro, appeared on CNBC to suggest that she is observing capital moving away from high-multiple mega-cap stocks and toward small caps, cyclical sectors, and international markets. This shift is supported by an easy monetary policy, including the end of quantitative tightening and Fed rate cuts, as well as a fiscal policy that is expected to impact the US economy more significantly over the next few quarters. She specifically highlighted the S&P SmallCap 600 as a preferred way to play the small-cap market due to its high concentration in industrials and financials. Akoner argued that down-cap stocks are undervalued and historically outperform as a rate-cutting cycle progresses. Focusing on the quality of investments, Akoner emphasized the importance of selecting small caps with strong balance sheets and consistent cash flows, particularly because liquidity is currently expensive.

Earlier on December 12, Jonathan Krinsky, managing partner and chief market technician at BTIG, joined CNBC’s ‘Closing Bell’ to discuss small caps as well. Krinsky explained that while the Russell 2000 broke out to new all-time highs in September, the S&P 600 initially continued to struggle. This discrepancy suggested that the earlier breakout was driven by lower-quality, more speculative stocks. However, he pointed out that in the last couple of days, the S&P 600 joined the Russell 2000’s upward trend and is now within a very close margin of reaching its own all-time highs. He further detailed the significance of this move by noting that small caps are currently at essentially the same levels they occupied four years ago in November 2021. He suggested that if this current breakout can hold, there is potential for meaningful upside in the small-cap trade. This optimistic outlook for small caps is supported by observed moderation and relative weakness in several MAG7 tech giants. When analyzing the ratio of small caps relative to the MAG7, Krinsky observed that the market is just starting to break out above a multi-year downtrend that dates back to 2022 and 2023, indicating a potential runway for this theme as the market heads into 2026.

That being said, we’re here with a list of the 11 cheap penny stocks to invest in.

Our Methodology

We used the Finviz stock screener to compile a list of stocks trading at a forward P/E of less than 15 and a share price of less than $5. We then picked the 11 stocks that were the most widely held by hedge funds in Q3 2025. The stocks are sorted in ascending order of the number of hedge funds that have stakes in them.

Note: All data was sourced on December 22.

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 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).

11 Cheap Penny Stocks to Invest In

11. Ambev (NYSE:ABEV)

Forward P/E Ratio as of December 22: 13.30

Share Price as of December 22: $2.30

Number of Hedge Fund Holders: 20

Ambev (NYSE:ABEV) is one of the cheap penny stocks to invest in. Earlier in December, Barclays analyst Benjamin Theurer kept his Hold rating on the stock along with a $2.5 price target.

Previously, on November 26, Bernstein downgraded Ambev to Market Perform from Outperform with a $2.88 price target. The firm downgraded the stock due to valuation concerns following a 16% year-to-date gain. While the firm remains positive on Ambev’s long-term outlook, it warns that current market expectations are unrealistic.

In Q3 2025, Ambev’s performance was driven by the continued success of the company’s premiumization strategy. Volumes for premium and super-premium brands increased by more than 9%, allowing the premium segment to capture nearly 50% of the market share in Brazil. Beyond traditional beverage sales, Ambev’s digital ecosystem demonstrated explosive growth; the marketplace initiative saw its GMV soar 100% to an annualized BRL 8 billion, while the DTC platform, Ze Delivery, saw a 7% increase in GMV.

Despite these gains, the company navigated several negative headwinds. Beer industry volumes in Brazil were softer than anticipated, primarily due to unseasonably cold weather in the South and Southeast regions and constrained consumer purchasing power in the North and Northeast. In Argentina, beer volumes saw a mid-single-digit decline, underperforming the broader industry due to unfavorable pricing dynamics. Financially, Ambev reported a normalized net income of BRL 3.8 billion (up 7%) and a stated net income of BRL 4.9 billion, representing a 36% surge over the previous year.

Ambev (NYSE:ABEV), through its subsidiaries, produces, distributes, and sells beer, draft beer, carbonated soft drinks, malt & food, other alcoholic beverages, and non-alcoholic & non-carbonated products in Brazil, Central America and Caribbean, Latin America South, and Canada.

10. Akebia Therapeutics Inc. (NASDAQ:AKBA)

Forward P/E Ratio as of December 22: 8.73

Share Price as of December 22: $1.66

Number of Hedge Fund Holders: 21

Akebia Therapeutics Inc. (NASDAQ:AKBA) is one of the cheap penny stocks to invest in. On December 1, Akebia Therapeutics announced the official establishment of its rare kidney disease pipeline. This expansion is centered on two primary product candidates: AKB-097, a next-generation complement inhibitor, and praliciguat, a soluble guanylate cyclase/sGC stimulator. The development aligns with Akebia’s two-pronged corporate strategy: establishing Vafseo (vadadustat) as the standard of care for anemia in dialysis patients while building a robust pipeline for rare kidney conditions.

Vafseo is an oral once-daily treatment for anemia due to chronic kidney disease/CKD in adults on dialysis for at least 3 months and is not indicated as a substitute for emergency blood transfusions. Vafseo is currently approved in 37 countries and works by stimulating endogenous production of erythropoietin. It carries a Boxed Warning regarding increased risks of death, myocardial infarction, stroke, and vascular thrombosis.

Earlier on November 28, Akebia entered into an Asset Purchase Agreement with Q32 Bio Inc. (NASDAQ:QTTB) to acquire the global rights to ADX-097, which is now renamed AKB-097. Akebia paid an upfront fee of $7 million, with an additional $3 million due six months after closing. AKB-097 is a humanized anti-C3d monoclonal antibody fusion protein designed to target specific sites of complement activation within tissues. Unlike systemic inhibitors, AKB-097 provides therapeutic levels of inhibition directly at the organ level, potentially reducing the risk of infection and the need for high-frequency dosing.

Akebia Therapeutics Inc. (NASDAQ:AKBA) is a biopharmaceutical company that develops and commercializes therapeutics for patients with kidney diseases.