No doubt, penny stocks are for investors with a greater than average risk appetite, but considering their inexpensiveness and the possibility of towering returns, if any of these companies make it big, an average retail investor should at least consider them. In order to further increase the chances of success, we have picked out five penny stocks that hedge fund managers are collectively the most bullish on. While the list has many fallen stars in it, that doesn’t mean that these companies can’t make a turnaround. In fact, this limits the further downside as these companies come in the oversold territory.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).
#5 Orexigen Therapeutics, Inc. (NASDAQ:OREX)
– Investors with Long Positions (as of December 31): 12
– Aggregate Value of Investors’ Holdings (as of December 31): $31.02 Million
While the total number of hedge funds holding shares of Orexigen Therapeutics, Inc. (NASDAQ:OREX) dropped by seven during the October-December period, the subsequent aggregate value of their investments slid by about $18 million. The $91.89 million obesity drug maker has seen its stock price crater by over 90% over the last 12 months. The main reason for this being the FDA’s ruling against the company’s lead drug candidate Contrave, as regulatory authorities believed that the data was incomplete and the analysis immature. The cost of the new study is estimated at $210 million and, if undertaken, the results are not expected before 2022. Robert Pohly’s Samln Capital holds about 6.16 million shares of Orexigen Therapeutics, Inc. (NASDAQ:OREX) valued at $10.60 million as of the end of December.
#4 Quantum Corp (NYSE:QTM)
– Investors with Long Positions (as of December 31): 14
– Aggregate Value of Investors’ Holdings (as of December 31): $62.59 Million
The $163 million technology company engaged in providing storing and protection of data in physical, virtual and cloud environments might have seen the total number of hedgies bullish on it fall by three during the fourth trimester, but the aggregate value of their positions rose by about 18% as the stock gained 19% during that period. However, it has tumbled by 38% so far this year. In its financial results for the third fiscal quarter ended December 31, Quantum Corp (NYSE:QTM) missed both the top and bottom lines and provided a soft guidance for the next quarter. Furthermore, the company’s CFO Linda Breard has resigned. Starboard Value, managed by Jeffrey Smith, holds more than 25.69 million shares of Quantum Corp (NYSE:QTM) valued at $23.9 million, according to its last 13F filing.