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Penny stocks have a solid reputation for being a risky investment. However, if the potential rewards excite you, then the list below may provide an interesting starting point for your search.

To create the following list of penny stocks (priced under $5) we chose the names with a market cap above $100M that also met the following bullish indicators:

  • Rallying above 20, 50 and 200 day market average (MA).
  • Undervalued to analyst target price by over 10%

We were left with 12 names, detailed below.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these names will continue to rally and meet their target prices? Take a look at the list below and use it as a starting point for your own analysis.

1. Alexza Pharmaceuticals Inc. (NASDAQ:ALXA): Drug Manufacturers Industry. Market cap of $113.93M. Current Price at $1.65 vs. target price at $2.25. Implies a potential upside of 36.36%. Rallying at 2.16% above its 20-day MA, 6.54% above 50-day MA, and 5.32% above 200-day MA. The stock is a short squeeze candidate, with a short float at 5.79% (equivalent to 5.43 days of average volume). The stock has had a good month, gaining 12.06%.

2. Metropolitan Health Networks Inc. (MDF): Health Care Plans Industry. Market cap of $193.99M. Current Price at $4.73 vs. target price at $6.32. Implies a potential upside of 33.62%. Rallying at 0.33% above its 20-day MA, 4.68% above 50-day MA, and 6.89% above 200-day MA. Might be undervalued at current levels, with a PEG ratio at 0.75, and P/FCF ratio at 11.26. The stock has gained 5.12% over the last year.

3. RTI Biologics, Inc. (NASDAQ:RTIX): Medical Appliances & Equipment Industry. Market cap of $156.65M. Current Price at $2.95 vs. target price at $3.85. Implies a potential upside of 30.51%. Rallying at 2.73% above its 20-day MA, 4.46% above 50-day MA, and 9.6% above 200-day MA. The stock has had a couple of great days, gaining 6.77% over the last week.

4. Wet Seal Inc. (WTSLA): Apparel Stores Industry. Market cap of $447.79M. Current Price at $4.4 vs. target price at $5.67. Implies a potential upside of 28.86%. Rallying at 6.62% above its 20-day MA, 1.23% above 50-day MA, and 15.2% above 200-day MA. The stock is a short squeeze candidate, with a short float at 19.54% (equivalent to 8.41 days of average volume). The stock has had a couple of great days, gaining 11.93% over the last week.

5. X-Rite, Incorporated (NASDAQ:XRIT): Photographic Equipment & Supplies Industry. Market cap of $407.36M. Current Price at $4.74 vs. target price at $6. Implies a potential upside of 26.58%. Rallying at 4.89% above its 20-day MA, 3.12% above 50-day MA, and 8.49% above 200-day MA. The stock has had a couple of great days, gaining 6.28% over the last week.

6. ADPT Corp (OTC:ADPT-OLD): Computer Based Systems Industry. Market cap of $360.93M. Current Price at $3 vs. target price at $3.77. Implies a potential upside of 25.67%. Rallying at 1.59% above its 20-day MA, 3.06% above 50-day MA, and 2.33% above 200-day MA. The stock has gained 5.63% over the last year.

7. The Hackett Group, Inc. (NASDAQ:HCKT): Management Services Industry. Market cap of $198.17M. Current Price at $4.86 vs. target price at $6. Implies a potential upside of 23.46%. Rallying at 0.32% above its 20-day MA, 8.28% above 50-day MA, and 22.88% above 200-day MA. The stock has had a couple of great days, gaining 7.3% over the last week.

8. Syntroleum Corp. (NASDAQ:SYNM): Oil & Gas Refining & Marketing Industry. Market cap of $150.82M. Current Price at $1.87 vs. target price at $2.25. Implies a potential upside of 20.32%. Rallying at 5.53% above its 20-day MA, 1.49% above 50-day MA, and 1.68% above 200-day MA. The stock is a short squeeze candidate, with a short float at 5.18% (equivalent to 11.17 days of average volume). The stock has lost 17.86% over the last year.

9. Active Power Inc. (NASDAQ:ACPW): Electric Utilities Industry. Market cap of $200.80M. Current Price at $2.49 vs. target price at $2.94. Implies a potential upside of 18.07%. Rallying at 6.46% above its 20-day MA, 3.98% above 50-day MA, and 14.96% above 200-day MA. The stock has had a couple of great days, gaining 6.81% over the last week.

10. Quantum Corporation (NYSE:QTM): Data Storage Devices Industry. Market cap of $743.93M. Current Price at $3.19 vs. target price at $3.71. Implies a potential upside of 16.3%. Rallying at 3.55% above its 20-day MA, 5.7% above 50-day MA, and 8.06% above 200-day MA. This is a risky stock that is significantly more volatile than the overall market (beta = 3.14). The stock has gained 37.71% over the last year.

11. Alphatec Holdings, Inc. (NASDAQ:ATEC): Medical Instruments & Supplies Industry. Market cap of $322.65M. Current Price at $3.54 vs. target price at $4.07. Implies a potential upside of 14.97%. Rallying at 2.06% above its 20-day MA, 8.3% above 50-day MA, and 34.91% above 200-day MA. The stock has had a couple of great days, gaining 8.71% over the last week.

12. Express-1 Expedited Solutions Inc (NYSE:XPO): Trucking Industry. Market cap of $101.01M. Current Price at $3.16 vs. target price at $3.45. Implies a potential upside of 9.18%. Strong upside momentum--currently trading 29.36% above its SMA20, 36.02% above its SMA50, and 34.74% above its SMA200. The stock has had a good month, gaining 38.46%.

*Data sourced from Finviz. Analyst data sourced from

Source: 12 Rallying Stocks Under $5 Undervalued by Analysts