In this article, we will take a look at the 12 Best NASDAQ Penny Stocks to Buy According to Hedge Funds.
On September 12, Franklin Templeton released its research on active U.S. small-cap management. The research found that active small-cap managers actually have a strong relative long-term performance record. The report highlighted the historical trend between active small-cap managers outperforming the Russell 2000 in periods when value stocks lead, while trailing the small-cap index when growth stocks lead.
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The research compared Morningstar’s Small Blend category average to the Russell 2000 index over monthly rolling 5-year periods. It found out that the Small Blend average beat the index 58% of the time. Even though the Small Blend average surpassed the Russell 2000 58% of the time during 5-year periods, it outperformed in 82% of value-led periods. However, it outperformed only 15% of growth-led periods. 65% of the periods were value-led, which contributed to greater relative success for active management. The research suggests that if this pattern persists, it has implications for the current market, particularly if an extended period of outperformance for value stocks begins.
Other key stats from the research included, if the annualized 5-year return for the Russell 2000 was 5% or lower, the Russell 2000 value outperformed in only 48% of the periods; however, they averaged higher returns compared to the Russell 2000 growth. When compared to annualized 5-year returns in the range of 5-10%, value stocks exceeded growth stocks 70% of the time. The research concludes that this is relevant now because Royce’s expectation for small-cap returns over the next five years is in the 5-10% range.
With these market trends in mind, let’s turn to the 12 Best NASDAQ Penny Stocks to Buy According to Hedge Funds.
Our Methodology
To compile the list of the 12 best NASDAQ penny stocks to buy according to hedge funds, we shortlisted the largest companies trading under $5 on the NASDAQ exchange from the Finviz screener. We then ranked these NASDAQ penny stocks in ascending order of the number of hedge fund holders. The data for hedge funds is taken from Insider Monkey’s Hedge Fund database, updated as of Q2 2025.
Note: The data was recorded on September 12.
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).
12 Best NASDAQ Penny Stocks to Buy According to Hedge Funds
12. Prospect Capital Corporation (NASDAQ:PSEC)
Price as of September 12: $2.79
Number of Hedge Fund Holders: 11
Prospect Capital Corporation (NASDAQ:PSEC) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 8, Prospect Capital Corporation (NASDAQ:PSEC) and an affiliate completed an $18 million investment in The Ridge.
In collaboration with Thesis Capital Partners, Prospect Capital has provided a first lien senior secured term loan and an equity investment to The Ridge, a physician-led addiction treatment facility that provides personalized care in a luxurious residential setting. The company offers various services, from detoxification to outpatient care, integrating evidence-based clinical treatments with holistic therapies.
“Prospect is pleased to provide growth capital to The Ridge to work in collaboration with Thesis Capital Partners and The Ridge management team. The Ridge is a differentiated treatment facility focused on professionals in the high-end substance abuse market. We look forward to supporting the Company’s continued growth,” said David Moszer, Managing Director at Prospect.
On September 9, Wells Fargo analyst Finian O’Shea reiterated a Sell rating on Prospect Capital Corporation (NASDAQ:PSEC), keeping the price target at $2.5. The company’s net debt to total assets ratio of 30.4% indicates a relatively high level of leverage. Prospect’s real estate investment, which yields 4.5%, is being strategically exited, which is impacting income from this segment. Despite these challenges, Prospect continues to diversify its funding strategy with $12.2 billion of commitments from 48 banks as of Q2 FY2025, reflecting strong support from the lender community.
Prospect Capital Corporation (NASDAQ:PSEC) is a business development company that focuses on lending to and investing in private businesses. The company’s debt and equity investments allow it to generate current income and achieve long-term capital appreciation.
11. Tilray Brands, Inc. (NASDAQ:TLRY)
Price as of September 12: $1.12
Number of Hedge Fund Holders: 12
Tilray Brands, Inc. (NASDAQ:TLRY) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 4, Tilray Brands, Inc.’s (NASDAQ:TLRY) award-winning brand Breckenridge Distillery and its partner, the Denver Broncos, entered into their fifth year of partnership with a new lineup of spirits.
The partnership between Breckenridge Distillery and the Denver Broncos celebrates the growing business between the two firms. The new bold lineup of limited-edition spirits celebrates the game-day pride.
“This year’s collection is a true celebration of Colorado, of championship legacy, and of Broncos Country. From the rare, harvested honey in our Broncos Honey Whiskey to the nostalgia-packed Vodka Creamsicle Seltzer, we’ve created something special for every kind of fan,” said Bryan Nolt, founder of Breckenridge Distillery.
The limited-edition brings the smooth, golden finish of the new Breckenridge Broncos Honey Whiskey, the nostalgic Broncos Creamsicle Vodka Seltzer, a special edition camo-labeled Breckenridge Bourbon, and a Broncos Single Barrel Championship Reserve bottle.
On August 25, Jefferies analyst Kaumil Gajrawala increased the price target on Tilray Brands, Inc. (NASDAQ:TLRY) from $1.50 to $2, keeping its Buy rating. Gajrawala remains positive about TLRY following the rescheduling of cannabis from Schedule I to Schedule II in the U.S. This development serves as a major government policy change that could favor Tilray.
Tilray Brands, Inc. (NASDAQ:TLRY) is a lifestyle consumer products company that engages in the research, cultivation, processing, and distribution of medical cannabis products. The company operates via four segments: Beverage, Cannabis, Distribution, and Wellness.
10. iQIYI, Inc. (NASDAQ:IQ)
Price as of September 12: $2.61
Number of Hedge Fund Holders: 13
iQIYI, Inc. (NASDAQ:IQ) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 10, iQIYI, Inc. (NASDAQ:IQ) reported that it is set to launch ‘Peter Pay x iQIYI AI Theater.’
iQIYI announced a pioneering initiative with Academy Award-winning Cinematographer and Director Mr. Peter Pau to launch the AI storytelling lab. The program has a theme of ‘Your Vision, The Next Dimension,’ which aims to empower modern professional creators to gain skills in AI-powered filmmaking. The company’s focus is to further strengthen its leadership in advancing future storytelling.
“AI is reshaping every facet of content creation at iQIYI, redefining the very way stories are told. In collaboration with Peter, we are launching the AI Storytelling Lab to nurture top talents in AI-driven storytelling, inspire bold and original works, and empower outstanding creators with the best platforms and opportunities to stand out and shape the future of entertainment,” said Mr. Xiaohui Wang, Chief Content Officer of iQIYI.
The AI storytelling lab invites participants to produce and submit AI-driven films that are at least 15 minutes long. Creators can submit their ideas and initial scripts from September 10 through October 31, 2025. Thirty teams will be shortlisted for an intensive one-week residency, receiving direct mentorship from a team of expert instructors led by Peter. Out of those, only 15 will make it to the production slate, with iQIYI offering support for production, distribution, promotion, and continued mentorship from Peter. The participating creators will be eligible for a 30% share of net profits.
iQIYI, Inc. (NASDAQ:IQ) offers online entertainment video services in China. The company provides various products and services, including online video, online games, online literature, comics, and others.
9. ImmunityBio, Inc. (NASDAQ:IBRX)
Price as of September 12: $2.60
Number of Hedge Fund Holders: 14
ImmunityBio, Inc. (NASDAQ:IBRX) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 10, H.C. Wainwright reiterated the Buy rating on ImmunityBio, Inc. (NASDAQ:IBRX), keeping the price target at $8.
Andres Y. Maldonado from H.C. Wainwright reaffirmed the rating on IBRX after the company announced promising developments with ANKTIVA in treating advanced non-small cell lung cancer (NSCLC). On September 8, ImmunityBio reported that the new paradigm-changing findings from the Phase 2 study showed that ANKTIVA reverses low natural killer and T cells in patients with checkpoint inhibitor-resistant advanced NSCLC.
The study found that 60% of the patients experienced reversal from lymphopenia, with 80% maintaining an absolute lymphocyte count (ALC) above 1,200 cells/uL. The results demonstrate significant improvements in survival rates among lymphopenia survivors. ANKTIVA’s immune reconstitution approach may have broader applications across different tumor types. ANKTIVA’s established presence in bladder cancer and ongoing developments in other malignancies make it a versatile and promising cytokine therapy. Maldonado’s positive take on ImmunityBio indicates the company’s optimistic outlook for its role in oncology.
ImmunityBio, Inc. (NASDAQ:IBRX) is a commercial-stage biotechnology firm that develops next-generation therapies that bolster the natural immune system to overcome cancers and infectious diseases.
8. Precigen, Inc. (NASDAQ:PGEN)
Price as of September 12: $3.79
Number of Hedge Fund Holders: 16
Precigen, Inc. (NASDAQ:PGEN) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 3, Precigen, Inc. (NASDAQ:PGEN) announced that it signed a credit facility agreement with total funds of up to $125 million.
Precigen entered into a credit facility agreement with investment funds managed by Pharmakon Advisors. The credit facility will allow Precigen to receive up to $125 million in two tranches, subject to the conditions of the agreement. According to the agreement, the first tranche of $100 million was funded at closing, while a second tranche of $25 million can be drawn at the company’s discretion through March 21, 2027.
“This fortifies our position for robust US commercialization of PAPZIMEOS, our groundbreaking novel immunotherapy, while also supporting efforts to expand to international markets and pursue pediatric and additional HPV-related indications,” said Helen Sabzevari, PhD, President and CEO of Precigen.
The $100 million funding supports the commercialization of PAPZIMEOS in the U.S., with the opportunity to expand into international markets. This also allows Precigen to pursue pediatric and other HPV-related indications. Sabzevari pointed out that PAPZIMEOS has the potential for revenue in the near future, and the company is well-positioned to deliver meaningful growth.
Precigen, Inc. (NASDAQ:PGEN) is a biopharmaceutical company that engages in the discovery and clinical-stage development of gene and cell therapies to target diseases in areas of immuno-oncology, autoimmune disorders, and infectious diseases.
7. AbCellera Biologics Inc. (NASDAQ:ABCL)
Price as of September 12: $4.47
Number of Hedge Fund Holders: 17
AbCellera Biologics Inc. (NASDAQ:ABCL) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 11, TD Cowen reiterated its Buy rating on AbCellera Biologics Inc. (NASDAQ:ABCL), without giving a price target.
TD Cowen analyst Brendan Smith sees the company’s focus on expanding its internal pipeline and strengthening its partnerships through the Biosecure program as catalysts for AbCellera. On August 27, AbCellera reported that it dosed the first participants in its Phase 1 clinical trial of ABCL575, a next-generation antibody treatment for moderate-to-severeatopic dermatitis (AD). The therapy will potentially help in the treatment of other inflammatory and autoimmune conditions. The company expects the data from this study in mid-2026.
Smith believes that the company’s liquidity position is good, as AbCellera is well-equipped in terms of financial resources and operational capacity. This positions the company to invest in strategic initiatives such as ABCL575 and navigate market conditions.
AbCellera Biologics Inc. (NASDAQ:ABCL) focuses on discovering and developing antibody-based treatments for indications with unmet medical needs in the U.S.
6. Clover Health Investments, Corp. (NASDAQ:CLOV)
Price as of September 12: $3.06
Number of Hedge Fund Holders: 17
Clover Health Investments, Corp. (NASDAQ:CLOV) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 8, Canaccord Genuity reiterated the Buy rating on Clover Health Investments, Corp. (NASDAQ:CLOV), keeping the price target at $4.10
Canaccord analyst Richard Close expects Clover Health Investment to benefit from the 2026 Medicare Advantage (MA) rates, which are projected to grow by an average of 9.04%. Along with this growth, the company’s top-rated PPO plan could boost its revenue per member and provide a substantial tailwind. Moreover, on September 9, Clover’s subsidiary, Counterpart Health, announced a major upgrade to its Counterpart Assistant (CA). The company’s fully integrated ambient scribing solution will get smarter with this upgrade, enhancing physicians’ experience.
The analyst weighs on Clover as the company has demonstrated effective cost management strategies, especially in handling Part A and Part B expenditures. Despite facing challenges with higher Part D drug spending, the potential of the company’s membership growth in 2026 justifies Close’s positive take on CLOV.
Clover Health Investments, Corp. (NASDAQ:CLOV) offers medicare advantage plans in the U.S. The company serves preferred provider organization and health maintenance organization plans to Medicare-eligible individuals.
5. Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX)
Price as of September 12: $4.83
Number of Hedge Fund Holders: 21
Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 10, Needham retained its Buy rating on Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX), maintaining the price target at $8.
Gil Blum from Needham reaffirmed the rating on RXRX due to various factors, pointing out the company’s strong position in the AI-driven drug discovery sector. Being a leader in this space, the company is backed by its extensive and proprietary dataset.
The analyst remains optimistic about Recursion Pharmaceuticals as the company has taken notable steps to extend its financial runway. The company is focusing on its pipeline, which now provides cash runways into the fourth quarter of 2027. Blum believes that the anticipation of multiple clinical readouts within the next 12 to 18 months supports the positive outlook of Recursion. Especially the significant updates on REC-617 in solid tumors and FAP results.
Analysts at Morgan Stanley and BofA retain a Hold rating on RXRX, keeping the price target at $4.8 and $8, respectively. As of September 12, Recursion Pharmaceuticals, Inc.’s (NASDAQ:RXRX) average price target of $6.50, based on analysts’ estimates, implies an upside of nearly 34.58% from current levels.
Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) is a clinical-stage TechBio firm decoding biology and chemistry to industrialized drug discovery. Its Recursion Operating System allows it to build across diverse technologies, enabling the company to map and navigate trillions of biological and chemical relationships within the dataset.
4. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF)
Price as of September 12: $3.46
Number of Hedge Fund Holders: 22
Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 8, Jefferies reiterated a Hold rating on Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) stock, keeping the price target at $4.15.
Jefferies analyst Kaumil Gajrawala retains the rating following Q2 FY2025 results. Petco Health and Wellness Company posted $1.5 billion in revenue, just in line with the estimates and up by 2.3% year-over-year. Gajrawala asked management regarding the e-commerce and inventory retooling. Petco’s CEO, Joel Anderson, in response to Gajrawala, said that e-commerce is now more profitable and early in its transformation. On the other hand, the inventory control continues to improve, balanced against customer needs.
These improvements have led to increased profitability, with operating income increasing significantly by $40.6 million to reach $43 million from a year ago. The adjusted EBITDA soared by $30.3 million to $113.9 million, indicating robust operational performance and strategic execution.
As of September 12, Petco Health and Wellness Company, Inc.’s (NASDAQ:WOOF) average price target of $4, based on analysts’ estimates, implies an upside of nearly 15.61% from current levels.
Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) is a health and wellness company that focuses on enhancing the lives of pets, pet parents, and its Petco partners in the U.S., Mexico, and Puerto Rico.
3. Plug Power Inc. (NASDAQ:PLUG)
Price as of September 12: $1.52
Number of Hedge Fund Holders: 23
Plug Power Inc. (NASDAQ:PLUG) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 2, BTIG reiterated its Hold rating on Plug Power Inc. (NASDAQ:PLUG), without any price target on the stock.
Gregory Lewis from BTIG retains the rating on Plug Power ahead of the company’s robust sales of Electrolyzer, with sales more than tripled from a year ago to $45 million during Q2 FY2025. This growth highlights the increasing role of GenEco in industrial applications. The company’s revenue was around $174 million, up 21% year-over-year, driven by robust demand across its GenDrive, GenFuel, and GenEco platforms.
Lewis does not have a price target yet as the company is struggling to achieve profitability. Despite improving gross margins significantly from -92% in Q2 FY2024, it remains around -31% as reported in Q2 FY2025. The company is focusing on better service execution, competitive hydrogen pricing, and product cost reductions.
Craig Irwin from Roth MKM also reiterates a Buy rating on PLUG, with a price target of $3.5. Irwin sees positive production activity at the Vista facility, experiencing large materials handling orders in fulfillment, notable electrolyzer activity, and a GenSure project for a rail customer to be key growth aspects for the company.
As of September 12, Plug Power Inc.’s (NASDAQ:PLUG) average price target of $1.77, based on analysts’ estimates, implies an upside of almost 16.78% from current levels.
Plug Power Inc. (NASDAQ:PLUG) offers an end-to-end green hydrogen ecosystem, from production, storage, and delivery to energy generation. The company produces commercially viable hydrogen and fuel cell production solutions.
2. Playtika Holding Corp. (NASDAQ:PLTK)
Price as of September 12: $3.75
Number of Hedge Fund Holders: 25
Playtika Holding Corp. (NASDAQ:PLTK) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 11, UBS lowered the price target on Playtika Holding Corp. (NASDAQ:PLTK) from $5.5 to $4, keeping its Neutral rating on the stock.
Chris Schoell from UBS retains the rating on PLTK with a slight adjustment in the price target. During the second quarter of FY2025, the company’s legacy portfolio, particularly Slotomania, experienced a 39.4% decline from a year ago. The company is focused on its efforts to stabilize and revive the title. If Playtika is successful in materializing its legacy portfolio, it would be a major boost for the company in the slot category. Whereas, Bingo Blitz revenue soared 2.9% year-over-year.
Schoell still remains positive about Playtika Holding after its strategic shift towards Direct-to-Consumer (DTC) revenue showed minimal growth at 1.3% during Q2 from a year ago. The company has raised its long-term DTC target from 30% to 40%. Moreover, the company’s user engagement improved significantly, with a 26.8% growth in average daily paying users reaching 378,000. However, this growth wasn’t reflected in financial gains.
Analysts at BofA, Wedbush, and TD Cowen all remain bullish on PLTK with a Buy rating, with each having a price target set at $5.5, $11.5, and $14, respectively. As of September 12, Playtika Holding Corp.’s (NASDAQ:PLTK) average price target of $5.25, based on analysts’ estimates, implies an upside of almost 40% from current levels.
Playtika Holding Corp. (NASDAQ:PLTK) develops mobile games together with its subsidiaries. The company distributes its games to the end customers via various web and mobile platforms and DTC platforms.
1. GoodRx Holdings, Inc. (NASDAQ:GDRX)
Price as of September 12: $4.19
Number of Hedge Fund Holders: 28
GoodRx Holdings, Inc. (NASDAQ:GDRX) is one of the best NASDAQ penny stocks to buy according to hedge funds. On September 2, GoodRx Holdings, Inc. (NASDAQ:GDRX) announced the launch of The Savings Wrangler.
GoodRx is entering a new creative territory with the launch of The Savings Wrangler. This brand campaign focuses on the company’s mission to bring life in an unforgettable way, introducing a lasso-wielding heroine to deepen cultural relevance and brand resonance. The heroine is a lovable and fiercely dedicated cowgirl who’s on a mission to help Americans against the Wild West of prescription pricing.
“We know prescription prices can be daunting, but saving money on them shouldn’t be. The Savings Wrangler is here to turn a frustrating experience into one that’s approachable, empowering, and hassle-free. We saw an opening for levity in healthcare advertising, but knew it was important to avoid a humor-at-all-cost mentality. The Savings Wrangler humanizes the experience felt by so many Americans at the pharmacy, showcasing our leadership role in helping them save time and money on prescriptions,” said Ryan Sullivan, Chief Marketing Officer at GoodRx.
The character named Dusty Pete personifies the heart of GoodRx, which reflects the goal of the company, which is helping people get the savings they deserve. The campaign launched with a TV spot on August 30, which will extend across multiple channels, including CRM, in-app, display advertising, and organic and paid social media, among others. The Savings Wrangler will be displayed in Times Square on September 22 with a full subway station takeover, indicating the bold message on prescription affordability.
GoodRx Holdings, Inc. (NASDAQ:GDRX), along with its subsidiaries, provides information and tools that allow consumers to compare prices and save on their prescription drug purchases in the U.S.
While we acknowledge the potential of GDRX 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 GDRX and that has 100x upside potential, check out our report about this cheapest AI stock.
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