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Steve's note: All this week, DailyWealth is featuring "penny stock secrets" from my colleague Frank Curzio. If you're not familiar with Frank's work, I encourage you to read his commentary closely. He's simply one of the best single-stock analysts I've ever met... and he's always finding great investment ideas most folks will never hear of. Read on for his latest...
One of the Greatest Secrets to Making Money in Low-Priced StocksBy
Thursday, January 28, 2010
I have an odd "watch list" to find great opportunities in stocks under $10.
It's my favorite stocks trading over $10... and under $15. Keeping this list handy is one of the best secrets to making money in low-priced stocks. Why do I watch $15 stocks when my mandate is to analyze stocks under $10? Consider the story of my most recent buy recommendation, small cap Take-Two Interactive... Take-Two Interactive owns one of the most valuable entertainment franchises ever created: Grand Theft Auto. If you're not a video game player, you can think of the franchise as the "Harry Potter of video games." It's a product that makes its target market go crazy... To give you an idea of how valuable this game is, consider that on April 29, 2008, the fourth installment of the series sold 3.6 million copies and generated $500 million in revenue in the first week of the release. It was one of the largest one-week entertainment launches in U.S. history. It was bigger than Star Wars, Spider-Man, Harry Potter, or just about any other movie, music, or book launch ever. Just before the game was launched, a larger game company offered to buy Take-Two for $26 a share. The company wanted control of the Grand Theft Auto franchise, along with some of Take-Two's other successful titles. Take-Two management turned the company down. Then the credit crisis hit... and Take-Two shares were crushed along with every other stock. Fast-forward to mid-2009. Take-Two had rebounded to over $12 per share. This is too "expensive" for my mandate. But I knew Take-Two had terrific potential to keep the Grand Theft Auto franchise going... and I knew some competitors had enough cash to buy the small cap. So I kept the company on my watch list... and I waited for a slipup. Take-Two did make a misstep on December 4. The company issued a terrible earnings report. It delayed the launch of new products. It missed estimates. The stock fell 30% to $7.74 per share. Now here's where penny stock traders, armed with their watch lists of stocks trading for $10-$15, step in. A few trading sessions after the fall, Penny Stock Specialist grabbed the stock. Take-Two jumped like a coiled spring back over $10 in less than a month. Now, I can't tell you exactly why many industry leaders – like Take-Two – that sink below $10 a share quickly trade back above that level. All I can tell you is that it's one of the greatest trading tools in the stock market. Below is a list of a few other industry leaders who saw their share price dip under $10 and snap right back. In the past year, these companies not only recovered but also outperformed the S&P 500 two to five times over...
I can't explain this phenomenon. In fact, some of you may say I have too much time on my hands. But my subscribers have cashed in countless times by paying close attention to this trend. My advice is to make a list of industry leading stocks that trade over $10 and under $15. Monitor them every week. If one has a misstep or reports weaker-than-expected earnings, you may get the opportunity to buy the stock under $10. It's one of the best-kept "penny stock" secrets I've found. Good investing, Frank Curzio P.S. This reminds me of another one of my favorite penny stock secrets... finding small companies that land lucrative deals with wealthy firms – like when a tiny company called NBTY landed a deal to sell its herbal supplements on Wal-Mart's shelves, shares of the small firm rose more than 2,000%. I'll admit, these situations are hard to come by. But I'm recommending one such opportunity for my Penny Stock Specialist readers right now. You can check out the full story here. Market NotesTHE CHINESE STOCK MARKET IS ROLLING OVER
The bears are starting to win the "China argument" we told you about a few weeks ago.
To recap, the Chinese economy and stock market are the center of a big debate. Some say the country is a huge pile of malinvestment. Some say don't worry, things are fine there. Now let's ask the market who is right... Chinese stocks enjoyed a huge rise from their November 2008 low to their August 2009 peak above 3,400. A few months later, the benchmark Shanghai Index declined to a low of 2,700. It then made a few weak attempts to get back to that peak during the winter. But exhausted buyers failed each time to push up prices. This chart pattern is a like an aging athlete who enjoyed a great career (rising prices, A) and reached his high point (market peak, B). Then, after a stumble from greatness, made several comebacks (failed rally attempts, C and D), only to be reminded he's 40 years old instead of 26. Granted, this is only a 10% decline from recent highs. It doesn't necessarily mean China is going to collapse. But it is fair to say the bull market in China has been dealt a severe punch to the gut... and the path of least resistance is now down. |
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