In this article, we discuss 12 Cash-Rich Penny Stocks To Buy According To Hedge Funds.
Shares priced under $5, commonly referred to as penny stocks, are a tempting bet for investors chasing big returns with minimal upfront investment. They typically come from smaller companies worth less than $300 million and are known for their wild price swings, low liquidity, and high risk. While they can deliver massive gains, they are just as likely to lead to steep losses due to limited financial data and unpredictable price movements. Speculative investors are drawn to them, but smart investing means balancing these high-risk picks with more stable assets.
Sometimes these stocks are undervalued, offering early investors a shot at big rewards if the company takes off. For example, many investors regret not buying up shares of Jeff Bezos’ e-commerce giant when the company went public in 1997, with shares priced under $2. By 1998, it had already shed its penny stock label, and the last time it dropped under $100 was back in 2009. Similarly, investors lament not picking up the iPhone maker’s shares back in 2003, when it was trading at $6.56 and almost a penny stock.
Penny stocks typically come from small-cap and mid-cap companies, which have historically delivered higher returns than large-cap stocks due to their growth potential and higher risk. However, in recent years, these smaller companies have struggled to keep up, as large-cap stocks, especially tech giants, have significantly outperformed. One primary reason is the shifting composition of major stock indices. The broader market’s dominance by a few mega-cap companies has skewed overall market performance. If the Magnificent Seven stocks were excluded each year, the market’s lead over the small-cap Russell would shrink considerably.
Small-cap stocks ended 2024 with their second consecutive positive quarter, rising 0.3% in the fourth quarter, as reported by Royce Investment Partners. However, they still could not keep up with large-cap stocks, as the Russell large cap index gained 2.7%. Despite some volatility, small-cap stocks reached a new high in late November, more than three years after their last peak, making it one of the longest recovery periods in the index’s history. In 2025, market volatility is expected to return to normal levels. But instead of seeing it as a threat, long-term investors view volatility as an opportunity. History shows that after periods of high market turbulence, small-cap stocks often deliver stronger returns than their large-cap counterparts. Keeping that in mind, let’s take a look at some cash-rich penny stocks which are Wall Street favorites as well.
A close-up of a portfolio of stocks, emphasizing the broad equity portfolio of the company.
Our Methodology
For this article, we used the Finviz stock screener to find penny stocks with strong cash reserves. We filtered for companies with stocks priced under $5 and a current ratio (CR) above 2, which indicates they have more assets than liabilities, due to high cash reserves, receivables, or inventory. After that, we manually looked for companies with a trailing twelve-month (TTM) operating cash flow of over $20 million as of December 31, 2024 and picked 12 stocks with the highest cash reserves. We also included hedge fund sentiment as of Q4 2024 and we’ve ranked the list in ascending order of the number of hedge fund holders in each firm.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
12. Prospect Capital Corporation (NASDAQ:PSEC)
TTM Operating Cash Flow as of December 31, 2024: $557,725,000
Number of Hedge Fund Holders: 10
Share Price as of March 4: $4.35
Prospect Capital Corporation (NASDAQ:PSEC) is a business development company that invests in middle-market and later-stage businesses. The company specializes in different types of financing, including secured loans, mezzanine debt, private equity, and real estate. Its diversified portfolio spans industries like manufacturing, energy, healthcare, and media. On January 31, 2025, the company announced that it invested $65 million in Taos Footwear through a mix of senior secured loans and preferred equity. Taos is a well-known brand for stylish and supportive footwear. Prospect’s managing director, Robert Melman, stated that PSEC is excited about backing a brand with a strong customer base and innovative products. It is one of the best cash-rich stocks to invest in.
In the December quarter, PSEC’s interest income accounted for 91% of total investment income, demonstrating a strong recurring revenue profile. Payment-in-kind income declined to $20 million, down 39% from the prior quarter and nearly 50% from June 2024. The company has long-term debts that will be paid off over the next 27 years. It has promised $62 million in future investments, but $29 million of that can be decided at its own discretion. As of December 2024, Prospect Capital Corporation (NASDAQ:PSEC) had $1.9 billion in available cash and credit, and $4.8 billion of its assets were free from any debt or obligations.
According to Insider Monkey’s Q4 data, 10 hedge funds were bullish on Prospect Capital Corporation (NASDAQ:PSEC), compared to 5 funds in the last quarter. Dmitry Balyasny’s Balyasny Asset Management was the leading stakeholder of the company, with 2.4 million shares worth $10.6 million.
11. FIGS, Inc. (NYSE:FIGS)
TTM Operating Cash Flow as of December 31, 2024: $81,162,000
Number of Hedge Fund Holders: 14
Share Price as of March 4: $4.575
FIGS, Inc. (NYSE:FIGS) is a California-based direct-to-consumer healthcare apparel company that designs and sells scrubs, outerwear, footwear, and accessories for healthcare professionals. FIGS opened its second retail store, the Rittenhouse Community Hub, in Philadelphia on September 19. This space was designed to give healthcare professionals a unique shopping experience, complete with an embroidery workshop, a lounge, and a café. Philadelphia was a natural choice for the hub, given its large healthcare community and proximity to major hospitals.
FIGS, Inc. (NYSE:FIGS) finished 2024 on a strong note, with Q4 revenue reaching $151.8 million, up 4.8% from last year, supported by repeat orders from loyal customers. US revenue dipped slightly by 0.5%, but international sales soared 45.2% to $24.3 million. The company generated $64.1 million in free cash flow during 2024 and grew its active customer base to 2.7 million, up 3% on a year-over-year basis. Additionally, the company’s board just approved $50 million to its stock buyback program. It is one of the best cash-rich stocks to monitor.
According to Insider Monkey’s fourth quarter database, 14 hedge funds reported owning stakes in FIGS, Inc. (NYSE:FIGS), the same as the prior quarter. Marshall Wace LLP is the biggest stakeholder of the company, with 1.48 million shares worth over $9 million.
10. Olaplex Holdings, Inc. (NASDAQ:OLPX)
TTM Operating Cash Flow as of December 31, 2024: $142,445,000
Number of Hedge Fund Holders: 15
Share Price as of March 4: $1.375
Established in 2014, Olaplex Holdings, Inc. (NASDAQ:OLPX) is headquartered in Santa Barbara, California. It is a hair care company that develops and sells products for hair treatment, maintenance, and protection. Its offerings include shampoos, conditioners, oils, masks, and serums. Olaplex is refreshing its brand while staying focused on science-based hair care. The company is strengthening its digital presence and visual identity to align with its commitment to innovation and professional stylists. OLPX ranks 10th on our list of the best cash-rich stocks to invest in.
In Q4, Olaplex Holdings, Inc. (NASDAQ:OLPX)’s net sales declined 9.8% year-over-year to $100.7 million. The loss in sales resulted from a combination of weaker international performance, delayed impact from brand marketing investments, and higher competition during the holiday season. On the bright side, the balance sheet stayed strong. With lower working capital needs and better operational discipline, the company’s cash reserves grew by $120 million to $586 million in 2024. Inventory was also trimmed down by $20.7 million to $75.2 million at year-end. Heading into 2025, the company feels confident about its inventory and plans to keep investments in line with sales growth.
Among the hedge funds tracked by Insider Monkey in Q4, 15 funds were bullish on Olaplex Holdings, Inc. (NASDAQ:OLPX), compared to 18 funds in the preceding quarter. Jim Simons’ Renaissance Technologies was the biggest stakeholder of the company, with 3 million shares valued at $5.3 million.
