In this article, we will take a look at overlooked penny stocks to invest in.

Penny stocks, or stocks trading under $5, often get overlooked due to their volatility and speculative nature. Keeping this general perception in mind, some investors miss out on genuinely compelling opportunities, but others, willing to look beyond the low share price and focus on fundamentals, unlock real value.

That backdrop appears increasingly relevant as broader market conditions turn more supportive of selective risk-taking. An article by iShares, titled “Investment Directions: 2026 outlook,” published on January 5, outlines that 2026 will be defined by stronger-than-trend growth, accommodative policy, and enhanced productivity. The author believes this makes selective risk-taking attractive. The publication advances by citing the latest client survey, in which 50% of respondents appeared bullish, with 48% of them likely to take risks in U.S. equities and 24% in emerging markets. On the other hand, investors who characterized themselves as bearish preferred developed markets abroad (24%) or considered Alts (24%).

That said, AI was kept as the focal point throughout the article, which proceeds to state,

“AI remains our top equity investment theme, as we believe the market continues to underappreciate the opportunity of the AI data center buildout. Overall, we believe AI-related names have the potential to lead again this year.”

A more constructive macro environment, improving investor risk appetite, and continued enthusiasm for AI-driven productivity are creating conditions in which overlooked stocks can come to the forefront.

With this backdrop in mind, let’s explore our selection of overlooked penny stocks to invest in.

Our Methodology

For this article, we began by filtering for companies with a market capitalization of over $2 billion and a trading price under $5. After this initial screening, we shortlisted stocks with the fewest hedge fund holdings, based on Insider Monkey’s database as of Q3 2025, indicating an overlooked angle. Finally, we selected the stocks with the highest upside potential and arranged them in ascending order.

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).

8. Ardagh Metal Packaging S.A. (NYSE:AMBP)

Upside Potential as of January 21, 2026: 0.23%

Number of Hedge Fund Holders: 30

On January 12, UBS lifted the price target on Ardagh Metal Packaging S.A. (NYSE:AMBP) to $4.25 from $4 and maintained a Neutral rating on the stock, according to TheFly. As stated by the analyst in a research note, UBS is not expecting a major macroeconomic change in 2026.

Recently, many analysts have updated their outlook on the company. On January 8, Stefan Diaz from Morgan Stanley increased the price target on Ardagh Metal Packaging S.A. (NYSE:AMBP) to $4.30 from $4.10, reiterating an Equal Weight rating. While expecting global demand for beverages to grow 2.3% in 2026, the firm favours companies with the prospects of greater earnings revision and improved return on investment (ROI).

Earlier on January 6, Truist also raised the price target on Ardagh Metal Packaging S.A. (NYSE:AMBP) to $5 from $4, keeping a Hold rating. As the analyst noted in the research note, beverage cans appear well-positioned to accelerate in North America and Europe, and, because of disciplined supply management, containerboard producers may introduce price hikes.

Ardagh Metal Packaging S.A. (NYSE:AMBP) is a Luxembourg-based metal beverage can company operating in the United States, Europe, and Brazil. Incorporated in 1932, the company mainly serves beverage producers.

7. Plug Power Inc. (NASDAQ:PLUG)

Upside Potential as of January 21, 2026: 1.35%

Number of Hedge Fund Holders: 27

On January 9, TD Securities trimmed its price target on Plug Power Inc. (NASDAQ:PLUG) to $2 from $4 and downgraded the stock from Buy to Hold. According to the firm, uncertainty continues to build around demand, and risks tied to execution exist for the company’s prime offerings.

With worries regarding the ramp-up in electrolyzers and material handling, which the firm believes is materializing slower than previously thought, TD Cowen says it has been “on the wrong side of the PLUG trade for some time.” Despite anticipating gross margin improvement in 2026 and EBITDA breakeven in 2027, the firm considers it wise to remain on the sidelines. Another headwind highlighted is the lack of clarity on how Plug Power Inc. (NASDAQ:PLUG) will achieve positive free cash flow.

Overall, Plug Power Inc. (NASDAQ:PLUG) has mixed analyst sentiment, with 28% of analysts covering the stock assigning a Buy rating and slightly more than half holding a cautious view as of January 21. The range between the high and low consensus price targets is also wide, with the consensus 1-year median price target of $2.25 implying about 1.35% upside.

Plug Power Inc. (NASDAQ:PLUG) is a New York-based developer of hydrogen fuel cell product solutions. Founded in 1997, the company offers GenDrive, GenSure, Progen, and GenFuel, among others.

6. Baytex Energy Corp. (NYSE:BTE)

Upside Potential as of January 21, 2026: 4.87%

Number of Hedge Fund Holders: 11

On January 16, TD Cowen downgraded Baytex Energy Corp. (NYSE:BTE) to Hold from Buy and reaffirmed a price target of C$5.

Thanks to the company’s rebranding project and reinstatement of its Normal Course Issuer Bid, the stock has appreciated significantly. Over the past six months, BTE has surged by nearly 77%.

Earlier on January 13, TheFly reported that RBC Capital downgraded Baytex Energy Corp. (NYSE:BTE) to Sector Perform from Outperform, while keeping a C$5 price target unchanged. RBC sees “higher relative rates of return elsewhere” within their coverage space, considering BTE’s earlier share rally.

Greg Pardy, an analyst at RBC Capital, describes the company’s sale of its Eagle Ford asset, in a $2.14 billion transaction, as a “strategically sound move.” This disposition has streamlined the company’s offerings, particularly emphasizing Canadian assets, with a commitment to return the net proceeds meaningfully to its shareholders. The market, too, has reacted favorably to the sale announcement on December 19, 2025. Since then, the stock has risen by approximately 11%.

Baytex Energy Corp. (NYSE:BTE) is a Canadian energy company specializing in crude oil and natural gas. Founded in 1993, the company provides heavy oil, natural gas liquids, natural gas, and light oil and condensate.

5. Coty Inc. (NYSE:COTY)

Upside Potential as of January 21, 2026: 13.50%

Number of Hedge Fund Holders: 30

On January 21, TD Cowen cut the price target on Coty Inc. (NYSE:COTY) to $3.40 from $3.50, and maintained a Hold rating, according to TheFly. This revision, suggesting upside potential of nearly 4%, was part of the firm’s Q4 preview, during which it adjusted estimates and targets for its beauty market coverage. According to the firm, strong beauty dynamics will fuel revenue upside across all the companies.

Since the start of 2026, several other analysts have updated their outlook for Coty Inc. (NYSE:COTY). On January 16, Barclays reduced the price target on the company to $3, down from $3.50, and reiterated an Underweight rating. The bank associated the recent “enthusiasm” in the stock with “a flight to safety,” while raising concerns about both the company and sector-wide fundamentals. As assumed by Barclays, potential oil and currency challenges could emerge this year.

Earlier on January 14, TheFly reported that Jefferies assumed coverage on Coty Inc. (NYSE:COTY) with a Hold rating and a price target of $3.50. This represents an upside potential of approximately 7%.

Coty Inc. (NYSE:COTY) is a New York-based provider of branded beauty products worldwide. Founded in 1904, the company operates through two segments: the Prestige and Consumer Beauty.

4. Wipro Limited (NYSE:WIT)

Upside Potential as of January 21, 2026: 16.33%

Number of Hedge Fund Holders: 19

On January 19, Morgan Stanley downgraded Wipro Limited (NYSE:WIT) to Underweight from Equalweight, and trimmed the price target from INR270 to INR242. The firm attributes this pessimism to the company’s growth trajectory, saying that fourth-quarter guidance reflects a flattish exit rate in organic terms. Thus, the company will need a significant improvement in consecutive quarterly growth rates to meaningfully enhance its performance.

Keeping this in mind, Morgan Stanley lowered its organic revenue growth estimates for Wipro Limited (NYSE:WIT) by 2.4%, from 4.2% YoY to 1.8% YoY in constant currency terms for FY27. This is based on a gradual ramp-up of contracts over the coming two quarters.

Three days earlier, Wipro Limited (NYSE:WIT) announced its third-quarter FY25 financial results, achieving 1.4% sequential expansion in IT services revenue to $2.64 billion. What’s even more interesting is that the company was able to report better operating margins of 17.6%, underscoring both efficiency and cost management.

Wipro Limited (NYSE:WIT) is an Indian IT, consulting, and business process services company. Founded in 1945, the company operates through two segments: IT Services and IT Products.

3. B2Gold Corp. (NYSEAMERICAN:BTG)

Upside Potential as of January 21, 2026: 21.70%

Number of Hedge Fund Holders: 37

On January 15, TheFly reported that Raymond James lifted the price target on B2Gold Corp. (NYSEAMERICAN:BTG) to $6.50 from $6 and maintained an Outperform rating. The revised price target suggests an upside potential of approximately 29%.

This adjustment better reflects new commodity price guidance for valuable and base metals, thus becoming the basis of gold and silver price estimate hikes. With expectations for expanding deficits in the medium to long term, Raymond James appears positive on copper in the base metals complex.

Separately, on January 19, Lawson Winder, an analyst at Bank of America Securities, reaffirmed a Sell rating on B2Gold Corp. (NYSEAMERICAN:BTG), with an unchanged price target of $4.30.

Overall, B2Gold Corp. (NYSEAMERICAN:BTG) has mixed analyst sentiment with 64% recommending buying the stock, 29% keeping a neutral stance, and the remaining 7% bearish on the stock. While the median price target of $6 reflects an upside potential of 21.70%, the highest and lowest price targets translate to an upside potential of 49.88% and a downside potential of 14.06%.

B2Gold Corp. (NYSEAMERICAN:BTG) is a Canadian gold producer operating the Fekola Mine, the Masbate Mine, and the Otjikoto Mine. Founded in 2006, the company also has a range of other evaluation and exploration assets in Mali and Finland.

2. BlackBerry Limited (NYSE:BB)

Upside Potential as of January 21, 2026: 28.29%

Number of Hedge Fund Holders: 21

On January 8, Todd Coupland, an analyst at CIBC, reiterated a Buy rating on BlackBerry Limited (NYSE:BB), with an unchanged $6 price target. As the highest 1-year price target, the reaffirmed stance reflects an upside potential of 57.89% from the current price.

On the same day, RBC Capital maintained a Sector Perform rating and a price target of $4.50 on BlackBerry Limited (NYSE:BB). According to the firm, the macroeconomic environment will likely be a growth headwind in the times ahead, mainly impacting its QNX business because of deferred projects and delayed platform launches. That said, the stock has declined by nearly 4% over the last six months.

RBC also highlighted that QNX’s momentum has skewed towards the lower end of the company’s long-term targets. If the midpoint of FY26 QNX revenue estimates of $263 million is considered, it falls near the bottom of the company’s $260-270 million target range for FY26 set at the November 2024 investor day.

BlackBerry Limited (NYSE:BB) is a Canadian provider of intelligent security software and services to both enterprises and government organizations. Incorporated in 1984, the company operates through three segments: Secure Communications, QNX, and Licensing.

1. Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX)

Upside Potential as of January 21, 2026: 51.84%

Number of Hedge Fund Holders: 19

On January 12, Alec Stranahan, an analyst at Bank of America Securities, maintained a Hold rating on Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX), while setting a price target of $7. In line with the consensus 1-year median price target, the stock boasts an upside potential of 51.84%.

On the same day, Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) disclosed a revised investor presentation ahead of its use at the JP Morgan Healthcare Conference. The presentation highlighted developments in its three core areas: AI-powered drug discovery platform, clinical pipeline, and financial environment. The company outlined its pioneer AI-driven clinical proof-of-concept in familial adenomatous polyposis (REC-4881), offering nearly 15 discovery-stage assets, and milestones with collaborators, including Sanofi, Roche and Genentech.

Additionally, Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) recorded $755 million in unaudited year-end 2025 cash position, anticipating cash runway through the end of 2027. This is backed by risk-adjusted partnership inflows and suggests a 35% decline in pro forma operating expenses from 2024 to 2026, and tighter cost discipline. Overall, management remains committed to positioning the company as a leading AI-native enterprise in the changing drug discovery and development space.

Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) is a Utah-based clinical-stage biotechnology company specializing in the decoding of biology and chemistry. Founded in 2013, the company develops REC-994, REC-2282, and REC-4881, among others.

While we acknowledge the potential of RXRX 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 RXRX and that has 100x upside potential, check out our report about this cheapest AI stock.

READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money.

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.