5 Cheap Penny Stocks to Buy According to Hedge Funds

In this article, we discuss 5 cheap penny stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 12 Cheap Penny Stocks to Buy According to Hedge Funds. 

5. Genworth Financial, Inc. (NYSE:GNW)

Number of Hedge Fund Holders: 23

P/E Ratio as of March 29: 4.17

Genworth Financial, Inc. (NYSE:GNW) provides insurance products in the United States and internationally. The company was founded in 1871 and is headquartered in Richmond, Virginia. One of Genworth Financial, Inc. (NYSE:GNW)’s achievements in 2022 was reaching its long-term debt goal and distributing profits to shareholders for the first time in over 13 years. The adjusted earnings per share for Q4 2022 were $0.33, which exceeded the market consensus of $0.23. Additionally, Genworth Financial, Inc. (NYSE:GNW)’s revenue increased to $1.90 billion in Q4, up from $1.84 billion in the previous quarter. It is one of the best cheap penny stocks to invest in according to hedge funds. 

According to Insider Monkey’s fourth quarter database, 23 hedge funds were bullish on Genworth Financial, Inc. (NYSE:GNW), compared to 25 funds in the last quarter. GLG Partners is the biggest position holder in the company, with 3.5 million shares worth $18.70 million. 

Here is what Ravensource Fund has to say about Genworth Financial, Inc. (NYSE:GNW) in its Q4 2021 investor letter:

“Genworth is a U.S. publicly listed (NYSE:GNW) insurance company that covers mortgage, life and long-term care needs. In 2021, the market price of our Genworth common shares increased from $3.78 to $4.05, growing the value of your Ravensource investment by 0.4%.

Much like Quad, Genworth had a transformative year. And much like Quad essentially none of its achievements were reflected in its share price. In 2021, Genworth sold its stake in its Australian mortgage insurance unit and successfully completed a partial IPO of its crown jewel U.S. mortgage insurer, both key milestones for our thesis. These non-core asset sales enabled Genworth to reduce its debt by ~$1bn / 50% in 2021, with over $3bn of total debt reduction since our initial investment. Genworth has gone from a company whose senior debt was trading at 10% yields, to a strong healthy company intending to return capital to shareholders in 2022 — the first time it will have done so since 2008. This is a critical final-stage step to Genworth rebuilding its market credibility and investor base, and will help bridge the gap between the current price and our conservative value of $5.00, representing a 23.5% potential return.”

4. Sirius XM Holdings Inc. (NASDAQ:SIRI)

Number of Hedge Fund Holders: 26

P/E Ratio as of March 29: 12.70

Sirius XM Holdings Inc. (NASDAQ:SIRI) is an audio entertainment company in the United States. On March 6, the company disclosed that it trimmed the size of its workforce by 8%, which amounts to 475 employees. Sirius XM Holdings Inc. (NASDAQ:SIRI) revealed that its decision to reduce the workforce was necessary in order to maintain a sustainable profitable company. It is one of the best cheap penny stocks to watch. 

On February 22, Barton Crockett, an analyst at Rosenblatt, decreased Sirius XM Holdings Inc. (NASDAQ:SIRI)’s rating from Buy to Neutral and reduced the price target from $7.40 to $4.80. The analyst observed that new and used car sales, which significantly contribute to subscriber growth, are not performing well and Sirius XM Holdings Inc. (NASDAQ:SIRI) has predicted a minor drop in subscribers in 2023. Despite the fact that Sirius XM’s paid subscription churn rate was at an all-time low in Q4, the CEO’s statements are in line with the notion that customers, over time, will tend to move away from satellite radio and toward other streaming services, which has been a long-standing negative stance, the analyst wrote in research note. 

According to Insider Monkey’s fourth quarter database, 26 hedge funds were long Sirius XM Holdings Inc. (NASDAQ:SIRI), compared to 24 funds in the prior quarter. Stuart J. Zimmer’s Zimmer Partners is a prominent stakeholder of the company, with 3.13 million shares worth $18.30 million. 

3. Altice USA, Inc. (NYSE:ATUS)

Number of Hedge Fund Holders: 27

P/E Ratio as of March 29: 7.26

Altice USA, Inc. (NYSE:ATUS) offers broadband communications and video services in the United States, Canada, Puerto Rico, and the Virgin Islands. It provides broadband, video, telephony, and mobile services to residential and business customers. According to Cowen analyst Gregory William, Altice USA, Inc. (NYSE:ATUS)’s financial results for the fourth quarter of 2022 were lower than expected, and the company is still spending heavily on operating expenses to revive the business in anticipation of growth in broadband subscribers. As a result, William reduced the firm’s price target on Altice USA, Inc. (NYSE:ATUS) from $21 to $18, but maintained an Outperform rating on the shares on February 23. 

According to Insider Monkey’s fourth quarter database, 27 hedge funds were bullish on Altice USA, Inc. (NYSE:ATUS), and Jonathan Kolatch’s Redwood Capital Management is the largest stakeholder of the company, with 15.2 million shares worth $70.3 million. 

Here is what MPE Capital has to say about Altice USA, Inc. (NYSE:ATUS) in its Q2 2022 investor letter:

“Two (very) costly mistakes I’ve made over the last twelve months have been my investments in Altice USA and Poshmark. Both are down over 50% from my initial purchase price. I not only poorly appraised business quality, I also incorrectly appraised the intrinsic value of both of these companies. It should rarely end up in the case that we pay over intrinsic value, at worst case we should never lose money on an investment. I will dive into one of these mistakes below and maybe dive into the other in a future letter. My thinking when buying Altice USA was that they operate as a duopoly in their main footprint, the New York Tri-State area. They provide a needs-based service: internet, video, and voice services. I figured this is a very stable business with high barriers to entry. Management seemed competent as well based on historical capital allocation decisions. I didn’t fully appreciate at the time how poorly positioned they were relative to Verizon Fios, as well as how fiercely competitive the business can get on promotions and customer acquisition.

Altice offers hybrid fiber coaxial (HFC) while Fios offers fiber-to-the-home (FTTH). FTTH is a far superior product, which has led to some share loss to Fios in the parts of their footprint that overlap. There have also been some subscriber losses in their other footprint due to new cable entrants and fixed wireless offerings. (Click to read full text)

2. Southwestern Energy Company (NYSE:SWN)

Number of Hedge Fund Holders: 44

P/E Ratio as of March 29: 2.96

Southwestern Energy Company (NYSE:SWN) is an independent energy company that engages in the exploration, development, and production of natural gas, oil, and natural gas liquids in the United States. Southwestern Energy Company (NYSE:SWN)’s capital investments in the fourth quarter of 2022 were $537 million, bringing full year capital investment to $2,209 million. The company sold 133 wells, drilled 138 wells, and completed 139 wells during the year.

Morgan Stanley analyst Devin McDermott revised the firm’s commodity assumptions for Southwestern Energy Company (NYSE:SWN) based on Q1 actuals and Q2 strip. As a result, McDermott lowered the firm’s price target on Southwestern Energy Company (NYSE:SWN) from $6 to $5 on March 27, while maintaining an Equal Weight rating on the shares. Across Morgan Stanley’s coverage, the analyst has observed a 1% decrease in WTI oil prices in Q1 and a 23% decrease in Q2 to align with the strip. For natural gas, the analyst has updated Henry Hub prices downward by 13% to account for Q1 actuals and an average of 24% for the rest of the year to align with the strip.

According to Insider Monkey’s fourth quarter database, 44 hedge funds were bullish on Southwestern Energy Company (NYSE:SWN), compared to 51 funds in the prior quarter. D E Shaw is the largest stakeholder of the company, with 19.4 million shares worth $113.4 million. 

Here is what Greenlight Capital has to say about Southwestern Energy Company (NYSE:SWN) in its Q1 2022 investor letter:

“SWN is the second largest producer of natural gas in the U.S. The company is well-situated to satisfy growing domestic and export demand. Over the short, medium and long term, Europe now intends to reduce its reliance on Russian energy and increase its use of U.S. LNG. Based on its 2021 year-end reserves – which assumed a $3.60/MMBtu long-term natural gas price – SWN has a PV-104 value of $13.83 per share. By the end of the first quarter, the U.S. natural gas 5-year forward curve averaged $4.28/MMBtu, while international seaborne LNG was close to $20/MMBtu. Over the intermediate term, with the benefit of substantial global investment in infrastructure, we expect prices for U.S. and international natural gas to converge. We acquired our shares at an average price of $6.58. SWN shares ended the quarter at $7.17.”

1. Farfetch Limited (NYSE:FTCH)

Number of Hedge Fund Holders: 44

P/E Ratio as of March 29: 5.90

Farfetch Limited (NYSE:FTCH) is one of the best cheap penny stocks to invest in according to smart investors. The company operates a platform for the luxury fashion industry in the United States, the United Kingdom, and internationally. It has three segments – Digital Platform, Brand Platform, and In-Store. The company reported a revenue of $629 million in the fourth quarter of 2022, beating Wall Street estimates by $2.04 million. 

On March 24, JMP Securities analyst Nicholas Jones initiated coverage of Farfetch Limited (NYSE:FTCH) with a Market Perform rating and no price target. While Farfetch Limited (NYSE:FTCH) is a significant player in the personal luxury retail industry, the analyst believes that challenges in the upper funnel trends and low consumer savings rates may limit the company’s growth in the near future. Moreover, since China is driving most of the growth in the luxury retail industry, the analyst is looking for evidence that Farfetch Limited (NYSE:FTCH) is expanding its business in the country successfully. 

According to Insider Monkey’s fourth quarter database, 44 hedge funds were bullish on Farfetch Limited (NYSE:FTCH), compared to 50 funds in the prior quarter. Bill Miller’s Miller Value Partners is the biggest position holder in the company, with 6.85 million shares worth $32.4 million. 

Polen U.S. SMID Company Growth Strategy made the following comment about Farfetch Limited (NYSE:FTCH) in its Q4 2022 investor letter:

“Farfetch Limited (NYSE:FTCH) is an online marketplace for luxury goods. The stock was down -35% on the back of an investor day where management issued targets that implied decelerating growth. While this is a disappointing development in what has shaped into a disappointing year for the stock, we are maintaining our position with a focus on the long-term opportunity. Luxury fashion is still in a very nascent stage of migrating online. Farfetch—through partnerships and deep relationships it has built over many years— remains very well positioned to benefit from this trend.”

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