On February 2, Francis Gannon, co-CIO of Royce Investment Partners, joined CNBC’s “Power Lunch” to talk about the long-awaited upswing in small-cap stocks. He noted that small caps have outperformed large-cap stocks since the market hit its lows in April 2025.
During the discussion, it was noted that sectors such as Industrials, Information Technology, and Financials still offer many attractive small-cap opportunities.
Gannon said that small-cap companies have a strong earnings outlook in 2026. He believes the strong performance by this asset class appears sustainable into 2026 and beyond. His confidence is based on improving earnings prospects for small-cap companies and historical data showing that periods of small-cap outperformance often last around a decade.
Earlier, on January 30, Reuters reported that Eric Diton, president and managing director of The Wealth Alliance, also said that small-cap stocks may be ready to outperform, as their earnings momentum continues to build, after trailing large-cap stocks for years.
With this background in mind, let’s take a look at the 13 best American penny stocks to invest in.
Our Methodology
To compile our list of the 13 best American penny stocks to invest in, we used the Finviz stock screener to find American stocks with a share price of under $5 as of February 20, 2026. We sorted our results based on market capitalization and picked the 40 best American stocks. Next, we focused on the top 13 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2025 database of 978 elite hedge funds. Finally, the 13 best American penny stocks to invest in were ranked in ascending order based on the number of hedge funds holding stakes in them as of Q3 2025.
Why do we care about what hedge funds do? 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).
13 Best American Penny Stocks to Invest In
13. N-able, Inc. (NYSE:NABL)
Share Price: $4.74
Number of Hedge Fund Holders: 23
N-able, Inc. (NYSE:NABL) is one of the best American penny stocks to invest in. On February 20, BMO Capital reduced its price target on N-able, Inc. (NYSE:NABL) from $9.50 to $5.50 and kept its Market Perform rating. This update comes after the company reported Q4 results. N-able, Inc. (NYSE:NABL) beat consensus estimates on most key metrics for the quarter.
The company also provided fiscal 2026 revenue growth guidance in constant currency that was mostly in line with BMO’s expectations. N-able, Inc.’s (NYSE:NABL) management expects revenue growth in fiscal 2026, on a constant currency basis, to accelerate through the year. However, BMO noted some concerns about the assumed contribution from new products. The research firm pointed out that investors are still worried about the defensibility of software solutions for mid-market and small and medium-sized business customers.
On February 20, Needham also lowered its price target on N-able, Inc. (NYSE:NABL) from $10 to $8 and kept its Buy rating. The research firm said it believes the company can execute at a high level as it continues to move up-market and experiences growing traction in extended detection and response solutions.
Needham pointed out that the lower price target reflects broader pressure on valuation multiples across the market.
N-able, Inc. (NYSE:NABL) is an American company that is known for its AI-powered cybersecurity platform that uses advanced end-to-end capabilities, simplified workflows, market-leading integrations, and flexible deployment options to improve efficiency and drive critical security outcomes. It helps protect businesses from evolving cyberthreats.
12. EVgo, Inc. (NASDAQ:EVGO)
Share Price: $2.78
Number of Hedge Fund Holders: 27
EVgo, Inc. (NASDAQ:EVGO) is one of the best American penny stocks to invest in. On February 16, JPMorgan reiterated its Buy rating on EVgo, Inc. (NASDAQ:EVGO) with a price target of $6 on the stock.
In other news, on January 13, EVgo, Inc. (NASDAQ:EVGO) shared its plans to build at least 150 fast charging stalls each year through 2035 at Kroger Family of Stores locations across the United States.
This move expands a partnership with The Kroger Co. (NYSE:KR) that first started in 2022. Under the new expansion plan, select Kroger Family of Stores locations could receive up to 16 high-power fast charging stalls as EVgo, Inc. (NASDAQ:EVGO) aims to offer customers reliable fast charging while they shop.
Under this expanded program, the first new charging site is already operational in Salt Lake City, Utah. EVgo, Inc. (NASDAQ:EVGO) also plans to open additional locations in other states, including Arizona, California, Florida, Georgia, Texas, and Washington.
The company’s chargers are expected to be installed at Kroger Family of Stores brands including Kroger, Foods Co., Fred Meyer, Fry’s Food Stores, Harris Teeter, King Soopers, and Smith’s Food and Drug.
EVgo, Inc. (NASDAQ:EVGO) is an electric vehicle (EV) charging company focused on providing EV charging solutions. With over 1,100 fast charging stations across more than 45 states, it is one of the leading fast charging providers in the US.
11. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA)
Share Price: $2.81
Number of Hedge Fund Holders: 27
Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is one of the best American penny stocks to invest in. On February 6, H.C. Wainwright reiterated its Buy rating on Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) with a price target of $9 on the stock.
This update followed the company’s February 5 announcement of data showing a best-in-class profile for its commercial therapy Amtagvi (lifileucel). Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) shared that the treatment delivered unprecedented response rates in a real-world clinical, retrospective study of patients with advanced melanoma that cannot be removed by surgery or has spread to other parts of the body.
According to the report by Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), Amtagvi is the first one-time T cell therapy for a solid tumor cancer. It is also the only FDA-approved treatment for advanced melanoma patients who have already been treated with anti-PD-1 and targeted therapy, where applicable. The results were presented in an oral session at the 2026 Tandem Meetings of the American Society for Transplantation and Cellular Therapy (ASTCT) and the Center for International Blood and Marrow Transplant Research (CIBMTR) in Salt Lake City.
Earlier, on February 4, Barclays also reiterated its Overweight rating on Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) with a price target of $10 on the stock.
Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is a commercial biotechnology company focused on developing tumor-infiltrating lymphocyte (TIL) therapies for patients with cancer.
10. Plug Power Inc. (NASDAQ:PLUG)
Share Price: $1.88
Number of Hedge Fund Holders: 27
Plug Power Inc. (NASDAQ:PLUG) is one of the best American penny stocks to invest in. On February 4, Plug Power Inc. (NASDAQ:PLUG) announced that it has completed the first hydrogen fill of Hynetwork’s 32-kilometer hydrogen pipeline in Rotterdam, Netherlands. The company supplied 32 tons of RFNBO-certified renewable green hydrogen and delivered a custom unloading infrastructure needed for the initial pipeline purging and filling operations.
Hynetwork is advancing construction across the Netherlands and Plug Power Inc.’s (NASDAQ:PLUG) work on the Rotterdam pipeline highlights its ability to provide full-stack hydrogen solutions in Europe, including production, certification, transportation equipment, custom engineering, EPC execution, and service support.
In other news, on January 9, TD Cowen downgraded its rating on Plug Power Inc. (NASDAQ:PLUG) from Buy to Hold and lowered the price target from $4 to $2.
TD Cowen pointed out that it is moving to the sidelines to watch the company’s execution, citing demand challenges in material handling and electrolyzers. The research firm also noted that Plug Power Inc.’s (NASDAQ:PLUG) electrolyzer ramp-up could take longer than expected.
Plug Power Inc. (NASDAQ:PLUG) is a global company specializing in hydrogen fuel-supply solutions. It provides electrolyzers, liquid hydrogen, fuel cell systems, storage tanks, and fueling infrastructure to various industries, including material handling, industrial applications, and energy producers.
9. Coty Inc. (NYSE:COTY)
Share Price: $2.65
Number of Hedge Fund Holders: 30
Coty Inc. (NYSE:COTY) is one of the best American penny stocks to invest in. On February 9, Morgan Stanley reduced its price target on Coty Inc. (NYSE:COTY) from $4.25 to $3.50 and kept an Equal Weight rating on the stock.
This update came after the company reported Q2 results, which Morgan Stanley noted were slightly below plan. The company’s Q3 EBITDA guidance was well below consensus estimates. Morgan Stanley pointed out that “the key negative” was the withdrawal of the fiscal 2026 guidance. The research firm pointed to a lack of visibility. Morgan Stanley believes that execution under the new interim CEO will now be important for Coty Inc. (NYSE:COTY) going forward.
On February 9, Canaccord Genuity also reduced its price target on Coty Inc. (NYSE:COTY) from $3.50 to $2.50 while keeping its Hold rating on the stock. This reduction in price target follows the company’s mixed Q2 results.
Canaccord Genuity pointed to uncertainty around Coty Inc.’s (NYSE:COTY) leadership transition and continued negative sales growth as key reasons behind its lower price target.
Coty Inc. (NYSE:COTY) is an American multinational beauty company with a portfolio of iconic brands across fragrance, color cosmetics, and skin and body care.
8. Newell Brands Inc. (NASDAQ:NWL)
Share Price: $4.68
Number of Hedge Fund Holders: 31
Newell Brands Inc. (NASDAQ:NWL) is one of the best American penny stocks to invest in. On February 9, UBS increased its price target on Newell Brands Inc. (NASDAQ:NWL) from $4.50 to $5 and kept its Neutral rating on the stock.
UBS analyst Peter Grom pointed out that investors are likely to focus on whether the improvements included in the company’s outlook will materialize as planned. While Newell Brands Inc. (NASDAQ:NWL) has shared what UBS sees as “concrete building blocks” to support top-line growth, the firm believes investors might prefer a “wait and see approach” because the company has struggled to achieve growth in recent years.
On February 9, Morgan Stanley also increased its price target on Newell Brands Inc. (NASDAQ:NWL) from $4.25 to $4.50 and maintained an Equalweight rating. Morgan Stanley pointed to “clear restructuring progress” at the company. However, it said this positive development is balanced by “continued topline softness” and “low visibility with margin volatility.”
The research firm also highlighted year-over-year declines in Newell Brands Inc.’s (NASDAQ:NWL) Q4 results and noted that the midpoint of the fiscal 2026 guidance is an area of concern. Even with these challenges, Morgan Stanley said the stock is trading at what it sees as a “depressed valuation.”
Newell Brands Inc. (NASDAQ:NWL) is an American consumer goods company with a strong portfolio of brands such as Rubbermaid, Sharpie, Graco, Coleman, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer’s, Oster, NUK, Spontex, and Campingaz.
7. Teladoc Health, Inc. (NYSE:TDOC)
Share Price: $4.80
Number of Hedge Fund Holders: 31
Teladoc Health, Inc. (NYSE:TDOC) is one of the best American penny stocks to invest in. On January 27, BofA Securities reduced its price target on Teladoc Health, Inc. (NYSE:TDOC) from $7.50 to $7 and kept its Neutral rating on the stock.
BofA Securities pointed out that BetterHelp’s monthly active users in Q4 are tracking 0.2% above Q3 levels but 18.7% down compared to the same period last year. Despite year-over-year trends being a little worse than in the previous quarter, BofA sees the flat growth quarter-over-quarter as a positive sign. The firm noted that Teladoc Health, Inc.’s (NYSE:TDOC) core Integrated Care business remains a differentiated offering. However, it pointed to uncertainty around the future growth of both the BetterHelp and Chronic Care segments.
Earlier, on January 16, Goldman Sachs also cut its price target on Teladoc Health, Inc. (NYSE:TDOC) from $9 to $8 and kept its Buy rating on the stock. The firm noted that MedTech and Healthcare IT stocks fell sharply between January 8 and January 14.
According to Goldman, this decline appeared mostly unrelated to fundamentals. The firm’s analyst noted that even companies announcing results above expectations saw their stock price fall, despite offering forward guidance that met or exceeded Street estimates.
Teladoc Health, Inc. (NYSE:TDOC) is a leading virtual care company that delivers 24/7 on-demand remote medical care, mental health services, and chronic condition management. The company helps patients connect with providers for primary care, mental health, and complex care needs.
6. Marqeta, Inc. (NASDAQ:MQ)
Share Price: $4.13
Number of Hedge Fund Holders: 34
Marqeta, Inc. (NASDAQ:MQ) is one of the best American penny stocks to invest in. On February 17, JPMorgan initiated coverage on Marqeta, Inc. (NASDAQ:MQ), giving the stock an Overweight rating and setting the price target at $6.
The company is scheduled to report Q4 results on February 24. JPMorgan expects 16% gross profit growth for Marqeta, Inc. (NASDAQ:MQ), which is about one percentage point higher than current Street estimates. The research firm also expects the company to guide for mid-teens gross profit growth along with solid adjusted EBITDA generation.
Some investors are worried that Cash App could diversify processors, which may affect Marqeta, Inc.’s (NASDAQ:MQ) business. However, JPMorgan believes that this risk is offset by growth in other parts of the company’s business, especially in Europe and in lending and buy now, pay later services.
Previously, on January 8, Mizuho downgraded Marqeta, Inc. (NASDAQ:MQ) from Outperform to Neutral and cut its price target from $8 to $4.50, citing concerns about rising competition in the payment processing industry.
On January 8, Wolfe Research also downgraded Marqeta, Inc. (NASDAQ:MQ) from Outperform to Peerperform. These updates come as the company’s Cash App Card’s new issuance transitioned to Bancorp, which could affect future growth.
Marqeta, Inc. (NASDAQ:MQ) is a financial technology company that provides a modern open API platform that helps businesses instantly issue cards and process payments.
5. Geron Corporation (NASDAQ:GERN)
Share Price: $1.90
Number of Hedge Fund Holders: 37
Geron Corporation (NASDAQ:GERN) is one of the best American penny stocks to invest in. On January 29, TD Cowen analyst Tara Bancroft reduced the firm’s price target on Geron Corporation (NASDAQ:GERN) from $4 to $3 and maintained a Buy rating on the stock. This update comes before the company’s fourth-quarter results, which the company plans to report on February 25.
In other news, on January 12, Geron Corporation (NASDAQ:GERN) shared its financial guidance for 2026. The company expects RYTELO net product revenue to be between $220 million and $240 million. Total operating expenses are projected to range from $230 million to $240 million. Geron Corporation (NASDAQ:GERN) said its 2026 outlook reflects expected revenue growth along with a year-over-year reduction in operating expenses, which it believes supports the strength of its balance sheet.
For 2026, Geron Corporation (NASDAQ:GERN) said its main priorities include growing RYTELO commercially in the US, exploring opportunities to expand RYTELO into lower-risk myelodysplastic syndromes (LR-MDS) markets outside the US, and advancing its Phase 3 IMpactMF trial.
Geron Corporation (NASDAQ:GERN) is a commercial-stage biopharmaceutical company focused on developing therapies for patients with blood cancers.
4. Aurora Innovation, Inc. (NASDAQ:AUR)
Share Price: $4.76
Number of Hedge Fund Holders: 39
Aurora Innovation, Inc. (NASDAQ:AUR) is one of the best American penny stocks to invest in. On February 12, Cantor Fitzgerald reiterated its Overweight rating on Aurora Innovation, Inc. (NASDAQ:AUR) with a price target of $12 for the stock.
The research firm noted that Aurora Innovation, Inc. (NASDAQ:AUR) has completed over 4.5 million total autonomous miles since January 31, 2026. This includes over 250,000 fully driverless miles. By year-end 2026, Aurora Innovation, Inc. (NASDAQ:AUR) plans to have more than 200 driverless trucks in operation, aligning with Cantor Fitzgerald’s forecast of 207 trucks for fiscal year 2026. This would be a huge increase from the 10 trucks it had as of December 2025. The company is also aiming to reach breakeven gross margins by the end of 2026 and positive free cash flow in 2028. Cantor Fitzgerald sees these updates as encouraging.
On February 12, Oppenheimer also reiterated an Outperform rating with a $15 price target on Aurora Innovation, Inc. (NASDAQ:AUR). According to Oppenheimer, the company is making “material progress” in growing its operating areas and extending routes. The firm added that the company’s next-gen hardware is expected to be available in the third quarter of 2026.
Oppenheimer also noted that Aurora Innovation, Inc.’s (NASDAQ:AUR) plan to have 200 vehicles on the road without observers by the end of 2026 is “essentially full commercialization of the platform. The research firm also pointed out that the company is in a good position to quickly validate new routes and bring on customers as more vehicles become available in the second half of 2026 and later.
Aurora Innovation, Inc. (NASDAQ:AUR) is a self-driving technology company. The Aurora Driver is a self-driving system that can operate various types of vehicles, including freight-hauling trucks and ride-hailing passenger vehicles.
3. UWM Holdings Corporation (NYSE:UWMC)
Share Price: $4.80
Number of Hedge Fund Holders: 45
UWM Holdings Corporation (NYSE:UWMC) is one of the best American penny stocks to invest in. On January 6, Goldman Sachs reduced its price target on UWM Holdings Corporation (NYSE:UWMC) from $6 to $5 and maintained a Neutral rating on the stock.
Goldman Sachs noted that regional banks have lagged the broader market by 200 to 300 basis points in 2025 due to macroeconomic concerns and credit risks. The research firm noted that the sector still experienced a 13% rally later in the year. Looking ahead to 2026, Goldman Sachs expects strong loan growth, improving net interest income, positive operating leverage, and better returns to support ongoing multi-year fundamental improvement. The research firm added that credit risk remains the key wildcard.
This news comes after UWM Holdings Corporation (NYSE:UWMC) reported that it has entered into a definitive merger agreement to acquire Two Harbors Investment Corp. (NYSE:TWO) in an all-stock deal valued at $1.3 billion in equity.
The company sees this as a forward-looking strategic move that will support its long-term vision. UWM Holdings Corporation (NYSE:UWMC) expects this transaction to create meaningful opportunities for higher profitability and cash flow, strengthen its balance sheet, streamline operations, and improve client outcomes. The merger will bring together two highly complementary organizations.
UWM Holdings Corporation (NYSE:UWMC) is the indirect parent company of United Wholesale Mortgage (UWM), which is the largest wholesale mortgage lender in the US.
2. Snap Inc. (NYSE:SNAP)
Share Price: $4.94
Number of Hedge Fund Holders: 50
Snap Inc. (NYSE:SNAP) is one of the best American penny stocks to invest in. On February 6, Piper Sandler lowered its price target on Snap Inc. (NYSE:SNAP) from $10 to $8 and kept its Neutral rating on the stock.
This update comes after the company’s latest earnings report. Revenue came in about 1% above Piper Sandler’s expectations and EBITDA was 18% higher than the firm’s forecast. Despite these results, Piper Sandler pointed to weaker trends in daily active users (DAUs) and higher projected expenses in the year ahead as key reasons for cutting the price target. The research firm lowered its fiscal year 2026 EBITDA estimate for Snap Inc. (NYSE:SNAP) by 9%.
On February 6, Truist Securities also reduced its price target on Snap Inc. (NYSE:SNAP) from $11 to $8 and maintained its Hold rating on the stock. This adjustment came after the company reported Q4 2025 results and provided Q1 2026 guidance, which Truist Securities sees as “relatively in line” with expectations.
The research firm pointed out that Snap Inc. (NYSE:SNAP) has shown solid cost management against advertising growth, which remains muted at 5%.
Snap Inc. (NYSE:SNAP) is an American technology and social media company that develops and maintains technological products and services. The company’s core products include Snapchat, Lens Studio, and Spectacles.
1. Peloton Interactive, Inc. (NASDAQ:PTON)
Share Price: $4.35
Number of Hedge Fund Holders: 62
Peloton Interactive, Inc. (NASDAQ:PTON) is one of the best American penny stocks to invest in. On February 6, BofA Securities lowered its price target on Peloton Interactive, Inc. (NASDAQ:PTON) from $9 to $7.5 but kept its Buy rating on the stock.
This update comes after the company reported its fiscal second-quarter results. Peloton Interactive, Inc. (NASDAQ:PTON) posted revenue of $657 million for the quarter, which was 3% less than Wall Street’s expectations of $677 million. This was driven mainly by lower-than-expected Connected Fitness Product sales to existing Members.
On February 6, Telsey Advisory Group also reduced its price target on Peloton Interactive, Inc. (NASDAQ:PTON) from $8 to $6 and kept its Market Perform rating. This update came after the stock experienced a significant decline, which Telsey described as “too severe,” even when the company continues to face growth challenges.
Telsey pointed out that the company has achieved “better financial footing with improved profitability and a stronger balance sheet” compared to the previous year. However, the research firm said that Peloton Interactive, Inc. (NASDAQ:PTON) has “yet to see evidence of a near-term inflection to growth in hardware sales and member count.” Despite the improved financial position, Telsey expects the stock to stay “range bound” in the near term because of uncertainty around the company’s growth prospects.
Peloton Interactive, Inc. (NASDAQ:PTON) is a fitness company that provides users with workout equipment and at-home workout classes and programs.
While we acknowledge the potential of PTON as an investment, 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 PTON and that has a 100x upside potential, check out our report about this cheapest AI stock.
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