In this article, we will look at the 8 Hot Penny Stocks To Invest In According to Hedge Funds.

Financial markets are betting that the Federal Reserve’s half-point interest rate cut in September will be followed by slower and smaller moves due to the surge in US job growth. A Labor Department report released on Friday, October 4, shows that employers added around 254,000 jobs in September, which was much more than expected. Unemployment declined to 4.1%. Federal Reserve chair Jay Powell said that the US Central Bank would consider returning to its more usual quarter-point cut in November if economic data remained robust.

In back-to-back appearances on Yahoo Finance and Bloomberg TV, Chicago Fed President Austan Goolsbee called the jobs report “superb,” saying that continued strong labor market data would give him additional confidence that the US economy is not headed for a crash and is at the full employment goal of the Fed.

Even so, he said that Fed policymakers would likely need to cut rates by “a lot” over the coming 12 to 18 months to ensure the strength of the labor market and that inflation stays around the Fed’s 2% target, as it has in recent months.

Stocks Surge After Job Report Gives Investor Confidence

Stocks surged on Friday, October 4, after the better-than-expected jobs report boosted investor confidence and perception about the health of the US economy. Michelle Cluver, head of ETF model portfolios at Global X, said:

“After a summer of weak labor data readings, this is a reassuring reading that the US economy remains resilient, supported by a healthy labor market. We remain in an environment where good economic news is good news for the equity market as it increases the potential for a soft landing.”

This bounce helped offset the losses sustained in recent days. After an unusually strong first nine months of 2024, increasing geopolitical tensions in the Middle East resulted in a shaky start in October for stocks.

Will Small Caps Rally in the Coming Days?

The US economy has successfully evaded the chances of a recession. The expected performance of small caps in a slowing economy has thus become an important discussion. Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management recently joined CNBC for an interview to talk about exactly that: the expected performance of small cap stocks in an economy going towards a soft landing. Prial is of the opinion that this is the beginning of a multi-year bull cycle for small cap stocks. Her claim is based on certain underlying reasons, including small caps being significantly underowned at the present. In fact, they are standing at record lows as a percentage of the total equity market.

In addition, the valuations of small caps are substantially attractive, and are considerably below their large cap counterparts in the S&P 500. The relative earnings growth for small cap stocks is another significant factor. With the earnings growth of small cap stocks expanding. Prial expects small cap stocks to be growing faster than their large-cap counterparts by the end of the year. She thinks that the Federal Reserve interest rate cuts and the confidence that the economy is moving towards a soft landing were what we really needed to turn the situation around.

Examining the S&P 500 EPS growth rate estimates shows that the market is anticipated to experience more than a 13% year over year growth in Q4 and more than 15% in the coming year. Since Prial mentioned that small caps are likely to outperform large caps in terms of growth in the coming future, she clarified that the overall indices might not be able to perform above the 15% threshold. Investors thus need to be good stock pickers to capitalize on the earnings growth trend, as she believes in a number of small cap stocks experiencing a 15% to 20% growth in the coming year.

Prial further broke the small cap category down, saying that she likes the energy sector in this domain because it will be a major player in the AI and data center industry in the years to come.

With small-cap stocks expected to rally, let’s look at the 8 hot penny stocks in invest in according to hedge funds.

Our Methodology

To compile the list of the 8 hot penny stocks to invest in according to hedge funds, we used the Finviz stock screener. We set the price filter to under $5 and the price target filter to positive 40% above price. We then examined the year-to-date performance of these stocks as of October 4, and picked the ones that are up significantly (at least 20%) for the year and are also popular among elite hedge funds. The stocks are sorted in ascending order of the number of hedge fund holders, as of Q2 2024.

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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

8 Hot Penny Stocks To Invest In According to Hedge Funds

8. New Gold, Inc. (NYSE:NGD)

Share Price: $2.85

Year to Date Performance: 95.21%

Number of Hedge Fund Holders: 21

New Gold Inc. (NYSE:NGD) is a Canadian gold mining company that operates a portfolio of two core-producing assets in Canada: the New Afton copper-gold mine and the Rainy River gold mine. The New Afton mine is located 10 km west of Kamloops, 350 km northeast of Vancouver, in British Columbia, Canada. Rainy River is located in Northwestern Ontario. The company also owns other Canada-focused investments. It acquires, explores, and develops natural resource properties.

The company is running on solid fundamentals, delivering quarterly plans according to its outlook. New Afton delivered a strong Q2 2024 production result at low cost, while Rainy River made substantial progress on the planned waste stripping program. The open pit is on the path to delivering on its increasing production profile for the second half of 2024.

New Gold Inc. (NYSE:NGD) ended the first half of 2024 with positive free cash flow and has entered a period of sustained free cash flow generation. It is also making progress on key growth projects, all of which remain on track for completion in the second half of 2024.

The company’s exploration efforts across both operations made substantial progress. Its New Afton team completed its exploration drift early in the quarter, immediately advancing priority near mine targets. Exploration drilling at Rainy River is also making meaningful progress, both underground and surface.

New Gold Inc. (NYSE:NGD)  produced around 69,000 gold ounces and 13.6 million pounds of copper in Q2. Rainy River managed to produce 50,300 ounces of gold according to plan, while advancing waste stripping. New Afton produced around 18,300 ounces of gold and 13.6 million pounds of copper. These numbers show a 10% increase in gold and a 13% increase in copper production compared to Q2 2023, highlighting the company’s progress. The company ranks eighth on our list of the top hot penny stocks to invest in according to hedge funds.

7. Butterfly Network, Inc. (NYSE:BFLY)

Share Price: $1.90

Year to Date Performance: 75.93%

Number of Hedge Fund Holders: 23

Butterfly Network (NYSE:BFLY) is a digital health company specializing in transforming care through intuitive software, semiconductor-based ultrasound technology, services, and educational offerings. The company has two portable ultrasound devices on the market: the third-generation Butterfly iQ3 and  the second-generation Butterfly iQ+. The Ultrasound-on-Chip technology powers both technologies, allowing them to undertake whole-body imaging on a single handheld probe through digital semiconductor technology.

The company offers cloud-based software solutions to in-app educational tutorials, healthcare systems, formal education programs (through the Butterfly certified courses and Butterfly Academy software), and teleguidance. It also offers professional services for large-scale deployments. Users using the Butterfly application can utilize six imaging modes: Code Doppler, B-Mode, Power Doppler, M-Mode, Biplane Imaging, and Pulsed-Wave Doppler.

Butterfly Network (NYSE:BFLY) is accelerating its revenue momentum to become more efficient. It is also continually investing in its future. It held an Investor Day earlier this year, introducing plans and roadmaps for its robust way forward. These plans, which it calls pillars, include accelerating growth in its core focus business, expanding its market, becoming more accessible to new user bases and new care settings (such as the home), and investing in R&D to maintain its differentiated tech, especially in its semiconductor innovation.

It reported $21.5 million in revenue in Q2 2024, showing a 16% year-over-year growth. This made Q2 2024 the most profitable quarter in terms of revenue in the company’s history. This indicates that its plans are delivering and working. A majority of this growth can be attributed to the iQ3 sales and an ASP uplift in the US.

In addition, solid performance by Butterfly Network’s (NYSE:BFLY) international team was another major factor, which launched iQ3 in Canada at the beginning of Q2, opened new markets in Southeast Asia, and added newly EU MDR cleared advanced features on its international iQ+ product.