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Steve's note: As I told you yesterday, this week in DailyWealth, my colleague Frank Curzio is sharing insights on his specialty: stocks under $10 a share. Frank's informal title for this series is "Penny Stock Secrets." In these essays, Frank will show you several great ways to make safe gains in low-priced stocks. And I can almost guarantee you haven't heard of the one below...
How to "Buy" Apple for Less Than $10 a ShareBy
Tuesday, January 26, 2010
OK... as Steve Sjuggerud mentioned, here is a true "penny stock secret."
I call it hitching a ride. Here's how it works... On October 23, 2001, Apple launched its small digital music player, the "iPod." In the past eight years, the tech giant has sold over 218 million units, which works out to around 75,000 players sold per day. Then, in 2007, in what USA Today called "the best launch for any consumer electronics product ever," Apple introduced the iPhone, which sold more than 3.5 million units in just the first year. In 2008, iPhone sales tripled to 13 million... and 2009's numbers reached an incredible 24 million units sold. You can make a case for the iPhone being the hottest electric device of all time. You probably know the other part of the story... Shares of Apple more than doubled in 2009. They've soared more than 1,000% over the past 10 years. It's one of the greatest business stories – and greatest stock moves – in American history. If you like, you can go ahead and buy Apple stock right now. It's a great company with a bright future. But the exceptional gains in this stock are long gone. I have a much, much better idea for you if you're interested making a fortune from huge product hits: For the biggest gains, don't buy the huge company with the hot product... buy its suppliers. Look for companies "hitching a ride" on its success. Here's why... When a California-based penny company called Synaptics landed a contract to supply Apple with the "scroll wheel" feature on the iPod, shares of the small firm skyrocketed from $2 to over $40 – a gain of more than 1,840%. A company called Skyworks, which provided a key radio-frequency component for the iPhone, has gone from $4.49 a share to $14 since the deal. That's a gain of 218%. You see, when a giant company like Apple hits it big with a product, it can rise 25%... 50%... or even 100% in a year's time. But what most folks don't ever consider is one of the great secrets of investing in penny stocks – stocks under $10: You can make far more money with the small, niche suppliers that suddenly see a flood of new demand. Now... before you go out and buy companies that provide vital services, materials, or components to successful companies like Apple, Nike, Wal-Mart, or ExxonMobil, keep one thing in mind... One supplier to the iPhone is Korean electronic giant Samsung. Samsung's business is huge and diversified. Sales to Apple don't make up a significant portion of its overall revenue. It's not a good "hitch." We need to find small, niche players in the "sweet spot," where one contract from a major player could double or triple revenues in the matter of a few years. These sorts of ideas don't come around every day, but when they do, you can make extraordinary gains in them. To find them, I listen to a lot of quarterly conference calls and read annual reports to find new ideas and new suppliers. Also, when I see a big consumer product hit or commodity trend, I always ask myself, "What is the less obvious way to play this? What is the 'hitch a ride' idea here?" Bottom line is, when you see a major business success developing for a large company, don't rush out to buy their shares. The big gains are long gone. The shares are likely way too popular and overvalued. Look to hitch a ride with smaller, cheaper stocks. Good investing, Frank Curzio P.S. Speaking of Apple... through an industry contact, I recently discovered Apple dropped its supplier for a crucial iPhone component and awarded a new contract to a tiny, unknown penny stock. The new deal gives this small company exclusive rights to supply Apple with a vital new component of the newest version of the iPhone... by far the fastest selling mobile phone in the world. It's huge news for this company. How I uncovered this stock is a wild story. You can learn it here.
Further Reading:
Why I'm Buying Stocks This Year Market NotesTHE SHORT-TERM CIRCLE IS NOW COMPLETE The past 16 months' trading in shares of Intel are one of the great "the market leads the news, not the other way around" stories we've ever seen. It's a story we constantly updated you on.
Last year, the world's largest producer of semiconductors was a monthly guest in this column. Intel makes the tiny engines that run the world's computers... which makes it a high-tech version of Dr. Copper. Tracking Intel's sales, profits, and share price gives us an "instant read" on the world's economy. In April, we noted how Intel shares held like a rock around $15 after releasing a horrible earnings report. When a stock holds steady or rises in the face of horrible news, it's a classic sign the bottom is in… and things are destined to get "less bad." Intel moved exactly as we scripted and shot up 33%… and the economy got "less bad." We've come full circle now. Eleven days ago, Intel reported a huge 28% increase in sales and beat analysts' expectations. So what did shares do with this great news? They fell! The moral of this 16-month story: You'll never make money buying on bullish news or selling on bearish news. "Easy" trades like that never work. This is one of the hardest lessons for a new trader to learn. We think this short-term story of Intel is a great teacher.  |
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