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.
9. GoodRx Holdings Inc. (NASDAQ:GDRX)
Forward P/E Ratio as of December 22: 6.64
Share Price as of December 22: $2.71
Number of Hedge Fund Holders: 21
GoodRx Holdings Inc. (NASDAQ:GDRX) is one of the cheap penny stocks to invest in. On December 18, Morgan Stanley lowered the firm’s price target on GoodRx to $4 from $5 and kept an Equal Weight rating on the shares. In a 2026 outlook for the Healthcare Services sector, the firm highlighted a strong environment for market-beating returns within healthcare tech and provider stocks. In contrast, Morgan Stanley remains cautious on managed care and noted that after a weak 2025, the subsector continues to face a storm of regulatory shifts, reimbursement challenges, and rising service usage.
Earlier on December 8, Barclays initiated coverage of GoodRx with an Underweight rating and $3 price target. This decision was made as the firm initiated coverage of the US healthcare technology and distribution sector with an overall neutral outlook, though the firm’s sentiment varies significantly across specific sub-sectors. The firm expressed strong bullish conviction toward drug distributors and cited them as the most attractive segment within the group.
In its Q3 2025 earnings report, GoodRx Holdings highlighted by a total revenue of $196 million, which was a slight increase of $1 million year-over-year. The company’s Manufacturer Solutions segment emerged as a primary growth driver, surging 54% to reach $43.4 million. While the overall revenue grew, the Prescription Transaction segment faced a 9% decline, largely due to the completion of Rite Aid store closures and lower transaction volumes within an integrated savings program.
The company made significant strides in the DTC space through high-profile pharmaceutical partnerships. GoodRx announced collaborations with Novo Nordisk to offer Ozempic and Wegovy for $499 per month and with Amgen to provide Repatha at nearly 60% off the retail list price. These initiatives are part of a broader strategy to operationalize D2C affordability, with the platform now hosting over 200 brand programs, including nearly 80 unique cash-pay prices.
GoodRx Holdings Inc. (NASDAQ:GDRX), together with its subsidiaries, offers information and tools that enable consumers to compare prices and save on their prescription drug purchases in the US.
8. Unisys Corporation (NYSE:UIS)
Forward P/E Ratio as of December 22: 9.82
Share Price as of December 22: $2.82
Number of Hedge Fund Holders: 21
Unisys Corporation (NYSE:UIS) is one of the cheap penny stocks to invest in. On December 10, William Blair analyst Maggie Nolan initiated coverage of Unisys with an Outperform rating. The firm views the global IT services provider as an attractive risk-reward opportunity. Nolan provided an optimistic financial forecast, estimating that Unisys will generate $253 million in EBITDA for 2025 and grow to $271 million in 2026.
The initiation report highlights a strategic pivot as Unisys reinvents itself as a next-generation IT solutions provider. By shifting toward higher-value solutions and expanding into the midmarket, the company aims to improve revenue quality and margin expansion. Nolan noted that while the transition is ongoing, the company’s legacy in mission-critical infrastructure, combined with new capabilities in AI and advanced cloud services, positions it to capture market share.
In Q3 2025, Unisys reported a substantial net loss of $309 million, which included a $228 million one-time, non-cash pension expense. Quarterly revenue also saw a decline, falling 7.4% year-over-year, attributed to light license and support renewals and a broader market pause in IT project spending. Despite the revenue shortfall, management remained confident in its profitability targets.
Unisys is currently on track to meet or exceed the midpoint of its improved non-GAAP operating profit margin guidance of 8% to 9%. This resilience is fueled by a 15% year-over-year increase in TCV and strong performance in the License and Support/LNS business. LNS revenue expectations for the year have been raised to $430 million, which is $40 million above original projections.
Unisys Corporation (NYSE:UIS), together with its subsidiaries, operates as an IT solutions company in the US, the UK, and internationally. It operates in three segments: Digital Workplace Solutions/DWS, Cloud, Applications & Infrastructure Solutions/CA&I, and Enterprise Computing Solutions/ECS.
7. Clarivate (NYSE:CLVT)
Forward P/E Ratio as of December 22: 5.28
Share Price as of December 22: $3.46
Number of Hedge Fund Holders: 25
Clarivate (NYSE:CLVT) is one of the cheap penny stocks to invest in. On December 4, Clarivate announced the official launch of its Cortellis Regulatory Intelligence AI Assistant, which is a tool powered by agentic AI to help life sciences professionals navigate the complexities of safety and compliance. This release follows a successful beta phase conducted earlier in the year and is now available to all Cortellis Regulatory Intelligence customers.
The assistant is built on Clarivate’s established AI platform and integrates over 30 years of regulatory expertise trusted by leading pharmaceutical companies and international agencies. The AI assistant aims to transform how regulatory teams interpret shifting global requirements into actionable insights. It allows users to ask complex questions in natural language and receive precise, cited answers that maintain context throughout a conversation.
Key features include multilingual capabilities and the ability to summarize documents in seconds, providing clear, customized takeaways. Additionally, the tool can instantly compare draft and final guidance documents, saving professionals hours of manual labor and accelerating decision-making throughout the product lifecycle. The assistant is designed to deliver accurate intelligence from early-stage development to improve patient outcomes.
Clarivate (NYSE:CLVT) operates as an information services provider in the Americas, the Middle East, Africa, Europe, and the Asia Pacific. It operates through three segments: Academia & Government, Life Sciences & Healthcare, and Intellectual Property.
6. Petco Health & Wellness Company Inc. (NASDAQ:WOOF)
Forward P/E Ratio as of December 22: 9.72
Share Price as of December 22: $2.91
Number of Hedge Fund Holders: 25
Petco Health & Wellness Company Inc. (NASDAQ:WOOF) is one of the cheap penny stocks to invest in. On December 2, Goldman Sachs lowered the firm’s price target on Petco to $4.53 from $5.14 with a Buy rating on the shares. The firm noted that Petco exceeded Q3 2025 expectations and is positioned to grow its top line in 2026. Goldman Sachs’ strategy centers on its services business, which acts as a unique differentiator.
Earlier on November 26, Morgan Stanley lowered the firm’s price target on Petco to $3.75 from $4.50 and kept an Equal Weight rating on the shares. The firm noted that Petco faces persistent hurdles due to an intense competitive landscape and a sluggish macroeconomic environment. These external pressures have obscured the timeline for a definitive rebound in sales and further gains in profitability, leading to a cautious outlook.
In Q3 2025, Petco Health & Wellness Company reported that the company’s net sales fell 3.1% to $1.46 billion, and comparable sales decreased by 2.2%, but the adjusted EBITDA rose 21% to $99 million, with the corresponding margin expanding by ~1.4% to 6.7%. This turnaround was driven by a 0.75% expansion in gross margin to 38.9% and a disciplined $32 million reduction in SG&A expenses, which provided 0.97% of expense leverage.
The company’s strategic pivot away from unprofitable sales and its focus on high-margin services are core to its transformation. While the products segment saw declines, the Services and Other category grew to $255 million. A standout highlight was the veterinary business, where Petco is ahead of its hiring goals with record-high doctor retention. Operationally, the company ended the quarter with 1,389 US stores following nine net closures year-to-date, though it plans to slow the pace of closures as it targets a return to growth in 2026.
Looking ahead, Petco raised its full-year 2025 Adjusted EBITDA outlook to between $395 and $397 million, while tightening its net sales forecast to a decline of 2.5% to 2.8%.
Petco Health & Wellness Company Inc. (NASDAQ:WOOF) operates as a health and wellness company that enhances the lives of pets, pet parents, and its Petco partners in the US, Mexico, and Puerto Rico.
5. Gogo Inc. (NASDAQ:GOGO)
Forward P/E Ratio as of December 22: 6.35
Share Price as of December 22: $4.70
Number of Hedge Fund Holders: 28
Gogo Inc. (NASDAQ:GOGO) is one of the cheap penny stocks to invest in. On December 9, William Blair analyst Louie DiPalma downgraded Gogo to Market Perform from Outperform. The firm expressed concern over intensifying competition from Elon Musk’s Starlink. This external pressure is compounded by Gogo’s high net debt and the expectation that subscriber growth for its Air-to-Ground/ATG network will remain stagnant. The company’s growth is currently hindered by a multi-quarter transition period as it works to migrate its remaining Classic system users over to the newer AVANCE platform.
In its Q3 2025 earnings report, Gogo highlighted a period of intense product transition and record-breaking demand for its hardware. The company achieved a milestone in equipment shipments, delivering 437 ATG units during the quarter. This surge in hardware sales signals robust future installation activity as Gogo prepares to roll out its next-gen 5G, HDX, and FDX systems, which aim to provide streaming-quality speeds for the global business jet market.
Strategically, the company is gaining traction in the MilGov (Military and Government) and international sectors. A major highlight was securing a global contract with VistaJet, which intends to deploy HDX and FDX connectivity across its entire fleet. The 5G service tier is expected to command twice the Average Revenue Per User of classic customers, as the new tech allows for data-heavy applications like video conferencing and streaming that were previously restricted,
Gogo Inc. (NASDAQ:GOGO), together with its subsidiaries, provides broadband connectivity services to the aviation industry in the US and internationally. The company’s product platform encompasses networks, antennas, airborne equipment, and software.
4. Coty Inc. (NYSE:COTY)
Forward P/E Ratio as of December 22: 7.14
Share Price as of December 22: $3.14
Number of Hedge Fund Holders: 30
Coty Inc. (NYSE:COTY) is one of the cheap penny stocks to invest in. On December 19, Bank of America lowered the firm’s price target on Coty to $3 from $3.50 and maintained an Underperform rating on the shares. Heading into 2026, the primary uncertainty for consumer staples is the trajectory of consumption growth. While valuations vary widely across the sector, the firm suggests that there is currently no compelling reason for investors to end their neutrality.
On December 12, TD Cowen also lowered the firm’s price target on Coty to $3.75 from $4 with a Hold rating on the shares. The firm revised its valuation model to account for updated revenue growth targets, specifically highlighting a cautious outlook for H1 2026. The firm identified several headwinds, including post-holiday inventory destocking at major retailers and a saturated promotional environment that may compress margins. The report also pointed to sustained pressure within the mass cosmetics category as consumers shift toward value-oriented spending.
Earlier on November 25, Rothschild & Co Redburn initiated coverage of Coty with a Neutral rating and $3.60 price target. The firm acknowledged potential upside for Coty shares but concluded that the stock’s risk-reward profile remains unattractive at current levels. The firm also expressed concern over heightened uncertainty regarding broader category growth and a lack of transparency surrounding the company’s ongoing strategic review.
Coty Inc. (NYSE:COTY), together with its subsidiaries, manufactures, markets, distributes, and sells branded beauty products worldwide. It operates through two segments: the Prestige and Consumer Beauty.
3. Newell Brands Inc. (NASDAQ:NWL)
Forward P/E Ratio as of December 22: 6.00
Share Price as of December 22: $3.73
Number of Hedge Fund Holders: 31
Newell Brands Inc. (NASDAQ:NWL) is one of the cheap penny stocks to invest in. On December 17, Citi raised the firm’s price target on Newell Brands to $3.75 from $3.50 while keeping a Neutral rating on the shares. Citi is recalibrating its focus for 2026, moving away from the bullish stance it held on non-alcoholic beverages in 2025. The firm now favors household and personal care stocks, citing a stronger fundamental outlook. This optimism is driven by the end of inventory destocking cycles and more favorable year-over-year consumption comparisons.
Earlier on December 2, UBS lowered the firm’s price target on Newell Brands to $4 from $5.50, while maintaining a Neutral rating on the shares. In a research note to investors, the firm explained that it is remaining on the sidelines, seeking greater clarity on market conditions before adopting a more positive stance on the company.
Additionally, in Q3 2025, Newell Brands recorded net sales of $1.8 billion, which was a 7.2% year-over-year decline, with core sales dropping 7.4%. These results fell short of expectations due to significant retailer inventory destocking and unreciprocated pricing actions taken to offset $180 million in incremental cash tariff costs. Despite the top-line pressure, the company achieved a net income of $21 million, which was a major swing from the $198 million net loss in the prior year, and reported normalized diluted EPS of $0.17
Looking ahead, Newell Brands is preparing for a return to growth in 2026, fueled by a pipeline of over 20 Tier 1 and Tier 2 product innovations. On December 1, the company announced a global productivity plan to cut its workforce by 10% (over 900 employees), aiming for annual savings of up to $130 million. For the full year 2025, the company expects net sales to decline 4.5% to 5%, with normalized EPS projected between $0.56 and $0.60.
Newell Brands Inc. (NASDAQ:NWL) designs, manufactures, sources, and distributes consumer and commercial products worldwide. The company operates in three segments: Home & Commercial Solutions, Learning & Development, and Outdoor & Recreation.
2. Bumble Inc. (NASDAQ:BMBL)
Forward P/E Ratio as of December 22: 5.51
Share Price as of December 22: $3.54
Number of Hedge Fund Holders: 34
Bumble Inc. (NASDAQ:BMBL) is one of the cheap penny stocks to invest in. On December 11, Jefferies lowered the firm’s price target on Bumble to $4 from $5 while keeping a Hold rating on the shares. The firm recommended a cautious stock-picking approach for the Internet sector in 2026. Key risks include limited margin growth due to rising investment costs and the possibility that AI agents could bypass traditional platforms, capping the potential for higher stock multiples.
In its Q3 2025 earnings report, Bumble disclosed that its total revenue for the quarter was $246 million, which was a 10% decline year-over-year. The Bumble App accounted for $199 million of this total (down 10%), while Badoo and other revenue fell 11% to $47 million. Despite the top-line contraction, the company achieved a net income of $52 million, which was a recovery from the $849 million net loss in the prior year, which had been driven by ~$900 million in non-cash impairment charges.
The company is currently prioritizing quality over quantity, a shift that has led to a deliberate 16% decline in total paying users to 3.6 million. However, this focus on higher-value members resulted in a 6.9% increase in Average Revenue per Paying User, which rose to $22.64. Management also highlighted the successful relaunch of BFF (formerly Bumble For Friends), noting improved user retention, though the new standalone app had not yet generated significant revenue as of September 30.
Looking ahead, Bumble provided a cautious outlook for Q4, projecting revenue between $216 and $224 million (a 14% to 17% year-over-year decline). Adjusted EBITDA is expected to land between $61 and $65 million with margins of 28% to 29%.
Bumble Inc. (NASDAQ:BMBL) provides online dating and social networking applications in North America, Europe, and internationally. It owns and operates websites and applications that offer subscription and in-app purchases of products.
1. UWM Holdings Corporation (NYSE:UWMC)
Forward P/E Ratio as of December 22: 10.86
Share Price as of December 22: $4.87
Number of Hedge Fund Holders: 45
UWM Holdings Corporation (NYSE:UWMC) is one of the cheap penny stocks to invest in. On December 17, UWM Holdings Corporation announced a definitive merger agreement to acquire Two Harbors Investment Corp. (NYSE:TWO). This all-stock transaction is valued at ~$1.3 billion in equity, based on a fixed exchange ratio of 2.3328x. The acquisition incorporates Two Harbors, which is a prominent mortgage servicing rights/MSR-focused real Estate Investment Trust and owner of RoundPoint Mortgage Servicing LLC, into UWM’s operations to create a more resilient and profitable business model.
A primary driver of the deal is the massive expansion of UWM’s servicing capabilities. The transaction adds a high-quality MSR portfolio with a $176 billion unpaid principal balance/UPB, nearly doubling UWM’s existing book to a total of ~$400 billion. This scale positions the combined company as the eighth-largest mortgage servicer in the US. By bringing this volume in-house, UWM expects to generate significant recurring revenue and provide its mortgage broker network with enhanced lead generation to drive consumer engagement.
Financially, the merger is expected to be highly accretive, with the opportunity for ~$150 million in annual cost and revenue synergies. UWM intends to use Two Harbors’ specialized capital markets expertise to create new efficiencies in financing, hedging, and secondary market activities. The resulting strong pro forma cash flow and fortified balance sheet are designed to allow the company to continue its current dividend policy for stockholders of both entities while maintaining aggressive investment in the broker channel.
UWM Holdings Corporation (NYSE:UWMC) engages in the origination, sale, and servicing of residential mortgage lending in the US.
While we acknowledge the potential of UWMC to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than UWMC and that has 100x upside potential, check out our report about this cheapest AI stock.
READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy Right Now.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
