George Leong edits the Pennies to Millions newsletter for Lombardi, and he’s got an ad out now touting three different “penny stocks” that could make you buckets of cash …
… the basic pitch is for “unknown” or “hidden” stocks with “home run” potential, and generally at fairly low prices (using “penny stocks” in the broadest possible definition here — not necessarily really penny-priced or microcap stocks, but low-priced stocks under $10 or so, with relatively small market capitalizations below a billion dollars).
Here’s how he catches our attention:
“My #1 Pick is like Medifast when it was undiscovered, BEFORE it made $173,789.50 for every $1,000 invested
“My #2 Pick is like Keurig Green Mountain when it was undiscovered, BEFORE it made $668,000 for every $1,000 iphnvested
“My #3 Pick is like Bally Technologies when it was undiscovered, BEFORE it made $207,421.10 for every $1,000 invested”
Not that he picked those three stocks and earned those profits, of course — probably no one did, that’s the nature of backtesting. You go back in time, look at the best imaginable stock performance, and see whether you can find more stocks like those.
But get that $1,000-to-$173,000 number out of your head right now — that would have meant that you found the absolute lowest price in Medifast sometime in 2000, down near 10 cents a share, and put $1,000 into it then held through ridiculous gains over more than a decade when it got to $30. And, of course, sold at $30 after the stock went to $15, then down to $2, then to $20, then down to $4, then to $30, then back down to $15, and now back to $30 again. That’s a wild ride, one most investors wouldn’t stick with even if they had the absurd good fortune to pick a 10-cent penny stock that actually didn’t go out of business. Leong’s picks may or may not be worth your time today, I’ll give you a chance to dig into them in a minute — but if you go into that research thinking about 17,000% gains, well, you’re not going to end up thinking clearly.
We’ve only ever looked at a stock teased by Pennies to Millions once, by the way, and it was not really a “penny stock” — that was several years ago when Leong touted Nokia (NOK)as a $7 stock that he expected to see “triple digit” gains within a few months. That obviously didn’t happen (the shares are still right around $7… to get triple digit gains you would have had to buy in when pessimism was far higher, a year or so after Leong teased it when the stock fell below $2 for a little while), but I don’t know what his actual track record might be beyond that one teaser pick he wrote about in 2011, so we’ll let bygones be bygones and see what he’s pitching this time for his Pennies to Millions newsletter (which, by the way, will run you $195 for the first year and $295 upon automatic renewal).
On to the clues for the “Three Grand Slam Home Run Stocks That Could Make You a Millionaire!” — we’ll look at them one at a time:
“My Hidden Stock #1 Could Lead You to Riches in the Field of High-Tech Electronics…
“LCD screens and chips like the one in your cell phone or tablet aren’t “built” from start to finish.
“Manufacturers use a technology called “photo masking” to burn an image of the circuits onto screens and chips—much like printing a photograph on a piece of light-sensitive paper.
“That’s where the real money is. You could have invested in Research In Motion and lost money when the BlackBerry tanked. Or, you could invest in Microsoft and see what happens to its tiny market share for Windows Phone.
“Now you don’t have to worry about betting on the right phone manufacturer—this #1 stock sells components that they all need….
“This company provides reticles and photomasks (the nuts and bolts of “printing” circuits onto LCDs and chips) to huge companies like LG Electronics, Samsung, and Texas Instruments….
“… this virtually invisible company has very little debt, and its earnings per share are estimated to grow an astounding 140% next year.
“Better yet, it’s bargain-priced at less than $9 a share.”
Well, there are only a few publicly traded companies that specialize in these photomasks, usually made of quartz, that are used in chip and screen production — some semiconductor companies make their own in-house for at least part of their needs, but there’s a fairly large “outsourced” business in making this equipment too. It so happens that of the big three companies that have substantial market share in the “merchant” business of producing photomasks for chipmakers, two are large ($5-8 billion market cap) Japanese companies that are indeed fairly close to $9 a share… and they’re not expected to grow very fast… but they are massive in comparison to the third, “virtually invisible” company that does have forecasted earnings growth of better than 100%… so I think it’s that smaller, US-listed company that Leong is touting: Photronics (PLAB).
Which isn’t to say that I know much of anything about them, or even really understand the technology of using these light masks (I think of them as kind of like a form that’s used in shaping plastic or metal — they provide a template of the design of the circuits on a chip (or, in much larger form, a flat display screen), so demand for these products should be created by innovation and product diversity. The more new chip designs there are, the more variety of products, the more masks will be needed to create them. It’s not so much about volume of chip production as it is the variety of new chips being produced (and the step-up to each new generation of “shrinking” chips, from 65nm to 32 to 20 and 14 and, in the near future, 10nm designs, with each new architecture needing new designs and new photomasks).
So that’s a decent backdrop — we are certainly seeing more and more new chip designs as chips go into more and more products, and more new form factors and designs for flat screen displays, whether portable or in television form. I don’t know if that’s enough to drive this company forward, they have tight relationships with a few customers and seem to be buffetted some by joint ventures (including one successful new one with DNP, one of the Japanese giants) and large partners starting and stopping their business with Photronics (like Micron, which is leaving a joint venture with Photronics but will still have a relationship with them and will pay out quite a bit of cash to them next year).
With a trailing PE of 19 they’re pretty reasonably valued for the earnings growth they’re expected to have, it appears, though that growth is expected to be about 100% this year and 50% this year (not quite the 140% teased)… but beyond that you can scope out their investor presentation here to get a more detailed introduction.
And… I’ve run out of time, have to go see my optometrist (hoping to get some rose-colored glasses that can see a few weeks into the future, fingers crossed), so I’ll leave you with that and get you the other two “home run stocks” next time out … have any thoughts on George Leong’s pitch or Photronics? Let us know with a comment below…