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This recent market turmoil has hit mega-cap stocks as well as most stock in the market. Accordingly, the search for top penny stock picks may be put aside for another day.

After all, penny stocks are generally smaller-cap companies trading below $5 per share. These companies are often earlier-stage startups or established companies that are struggling to regain their footing.

In this market environment, such companies are typically higher risk and are ones many investors will choose to avoid.

That said, herein lies the opportunity for some investors. Those looking for greater upside in this beaten-down market may do much better with a basket of such penny stock picks.

Interestingly, small-cap stocks typically outperform over the long run due primarily to the idea that the explosive upside many of these companies provide isn't recognized until it's too late.

Here are three top penny stock picks I think are worth looking at. Right now, these companies are on the watch list. However, like any investment, these companies are approaching a level that may be too attractive to ignore.

Party City (PRTY)

Let's kick this list of penny stocks off with a party.

Party City (NYSE:PRTY), the purveyor of a significant chain of party supplies stores and Halloween costumes, has been under some serious pressure of late. Despite nearly doubling over the past month, shares of PRTY stock are down more than 65% on a one-year basis. Like many penny stocks in the market, Party City's selloff has been tied to deleveraging and a risk-off trade forming.

Retail stocks in general have been hit, as many investors remain concerned about margins moving forward. Interestingly, Party City is one company that's actually outperformed on the bottom line, posting higher margins than expected.

During this past quarter, the company brought in earnings per share of $0.10. This beat analyst estimates handily and suggests that not all is going poorly for this retail name.

Additionally, with the Halloween season on the horizon, investors looking to place a bet on retail outperformance during this period certainly have a way to express this trade in PRTY stock. This is one company I think could be due for a continued short-term rally, despite the market volatility right now.

American Virtual Cloud Technologies (AVCT)

One penny stock I don't think is on most investors' radar is American Virtual Cloud Technologies (NASDAQ:AVCT). With a market capitalization of around $30 million, this cloud communications player largely flies under the radar.

That said, American Virtual is a company with a clientele list worth considering. Whether it's Microsoft (NASDAQ:MSFT), AT&T (NYSE:T) or IBM (NYSE:IBM), this is a company that's made some significant headway in building out its client list.

Interestingly, American Virtual received a buyout offer of $9 per share in early 2021. Since then, the company's stock price has languished, to put things nicely. Trading around $0.20 at the time of writing, it's safe to say most investors have given up on this cloud communications stock.

That said, the company has seen its top line grow as a result of the company's acquisition of Kandy service. Should the company return to its previous growth trajectory, expectations are that a new buyout offer may emerge, albeit at a lower valuation than previously.

This is a special situations play I think is worth considering, for those with the ability to grit their teeth right now.

Mullen Automotive (MULN)

One of the more volatile penny stocks that's gained attention from investors of late is Mullen Automotive (NASDAQ:MULN). This EV producer has certainly made some significant advancements in battery technology, one of the biggest growth segments investors in the auto industry are focused on.

Mullen's primary allure of late has come from the company's focus on solid-state battery technology. After announcing solid results for its solid-state polymer battery test, this stock popped. However, MULN stock has since resumed its decline, along with the broader market of late.

Should Mullen be able to commercialize its technology, which at scale is expected to provide a range of up to 600 miles on a single charge, there's some real speculative upside to be had here.

Of course, critics of solid-state battery technology say we're still likely a decade away from this tech being commercialized. Fair enough. It's also unclear whether Mullen's cash position will allow the company enough runway to get its early-stage battery technology to the market.

This stock is risky. However, for those betting on another bull market bounce at some point, this may be a stock worth keeping on the radar here.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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