In this article, we will take a look at the best fundamentally strong penny stocks to buy according to analysts.
Penny stocks often have a reputation for being volatile and risky, but some of these stocks are actually supported by strong fundamentals and growth potential. For investors willing to take the risk, such stocks represent a combination of valuation appeal and improving quality.
The broader macro backdrop remains an important consideration in the current market. In his December 18 article “Economic conditions outlook, December 2025”, Sven Smit, Senior Partner and former Chair of McKinsey Global Institute, Amsterdam, wrote that economic sentiment will turn more “optimistic,” with a weaker focus on trade policy and stronger confidence in companies’ prospects.
The article quoted a recent McKinsey Global Survey on the economic environment, in which surveyed executives reported the “brightest near-term expectations seen this year.” Over the last two quarters, trade policy changes have been identified as the leading risk to global growth. However, sentiment is shifting: respondents report increased optimism about their companies’ outlook, driven by leaders’ focus on customer needs and technology investments, rather than by macroeconomic conditions.
Generally, private-sector respondents now hold a more bullish view of their companies’ performance than they did earlier this year. As written by Smit,
“Sixty-three percent of respondents say their companies’ profits will increase in the next six months—the largest share since December 2024. Also, for the first time in 2025, more than half of respondents (52 percent) expect customer demand for their companies’ products or services to increase in the next six months.”
With this favorable outlook in mind, we have compiled a list of the best fundamentally strong penny stocks to buy according to analysts.
Our methodology
For this article, we filtered for stocks trading under $5. From this pool, we shortlisted stocks with market capitalizations over $2 billion and upside potential of at least 20%. We then ranked the stocks in ascending order by upside potential. We also included data on hedge fund holdings in these companies based on Insider Monkey’s database, as of Q3 2025.
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).
9. Clarivate Plc (NYSE:CLVT)
Upside Potential as of December 19, 2025: 20.34%
Market Capitalisation: $2.27 billion
Number of Hedge Fund Holders: 25
According to TheFly, Morgan Stanley downgraded Clarivate Plc (NYSE:CLVT) to Underweight from Equal Weight and reduced the price target to $3 from $5 on December 17. The firm believes that the company’s share will continue to underperform as its turnaround “continues to struggle.” From tight budgets to intense competition, the company’s strategic review is unlikely to generate significant value, the analyst says in a research note.
The leading bank noted guidance for flat-to-low-single-digit growth for Clarivate Plc (NYSE:CLVT) and limited operating leverage potential, which would result in low-single-digit adjusted EBITDA growth.
Morgan Stanley emphasized the funding pressures across key sectors, including pharmaceutical, academic, and government, as likely negative drivers under the current Administration, which could impact the company’s overall recovery. The competitive pressures arise from the accelerating AI, which could enhance the competitor’s capabilities to ingest data and compete within the company’s markets, the investment bank concluded.
Earlier on December 4, Ashish Sabadra, an analyst at RBC Capital, reaffirmed a ‘Buy’ rating on Clarivate Plc (NYSE:CLVT), setting a price target of $5. This reflects a potential upside of nearly 43% from the current price.
Overall, Clarivate Plc (NYSE:CLVT) has mixed analyst sentiment, with 30% of analysts covering the stock assigning a Buy rating and slightly more than half of the analysts holding a cautious view, as of December 19. The range between the high and low consensus price targets is also wide, with the consensus 1-year median price target of $4.20 implying about 20.34% upside.
Clarivate Plc (NYSE:CLVT) is a United Kingdom-based information services provider operating through three segments: Academia & Government, Life Sciences & Healthcare, and Intellectual Property. Incorporated in 1864, the company serves universities, government agencies, and other professional services organizations.
8. Coty Inc. (NYSE:COTY)
Upside Potential as of December 19, 2025: 22.70%
Market Capitalisation: $2.84 billion
Number of Hedge Fund Holders: 30
On December 19, Reuters reported that Coty Inc. (NYSE:COTY) had sold its remaining 25.8% ownership in Wella, a multinational hair care and cosmetics brand, to KKR in a $750 million transaction, while retaining a share of proceeds from any sale or IPO in the future.
Coty Inc. (NYSE:COTY) stated that it is entitled to 45% of any proceeds from a sale or IPO of the business after KKR’s preferred return is achieved, and intends to utilise the upfront cash to pay off its debt. Due to intensifying competition from newer brands, the company went through challenges over the last few years, particularly in the mass beauty segment. With that said, the company initiated a strategic review and considered selling the business to fully concentrate on its fragrances segment earlier this year. This refocus stems from the continuously declining demand for colour cosmetics, Reuters noted.
Thus, the company stated that the divestiture brings an end to the 5-year-old program to streamline both its offerings and operations. Coty Inc. (NYSE:COTY) acquired Wella from Procter & Gamble in 2015, as part of a $12.5 billion agreement for P&G’s beauty business.
On December 17, Citi slashed the price target on Coty Inc. (NYSE:COTY) to $3.50 from $4.25 and maintained a ‘Neutral’ rating, according to TheFly. The firm revised several targets in the beverages, household, and personal care sectors to better reflect its 2026 outlook.
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.
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