“The Next Big Thing: 3 Penny Stocks You Must Buy Now!” (Taste of the Friday File)

Rerun of Friday File Article from October 7, 2011

By Travis Johnson, Stock Gumshoe, December 9, 2011

During our Holiday charitable membership drive I’ve been getting quite a few questions about what it means to be a Stock Gumshoe Irregular — so I thought I’d share another older Friday File for all of you, this is a piece that was originally published in the Friday File in early October, and it so happens that this one was a “teaser reveal” about some “penny stocks,” one of which is down by 15% of so and one of which has doubled, so there’s a little for everyone! The article below has not been revised or updated since October 7.

I’ve been getting an ad from the folks at Penny Stock Publishing about a new (or newish, at least) letter called Penny Stock All-Stars. Edited by Gordon Lewis, and claiming to be an antidote to all the pump-and-dump penny stock letters out there that either take money from companies to write about their stock, or trade in the stock themselves as they’re manipulating it.

Which is nice, but it’s not so unique from most of the “legitimate” publishers — whether or not you like the promotional practices or stock picks of folks like Agora, Stansberry, or the Motley Fool, they’re pretty clearly making money (and lots of it) from subscriptions and advertising, not from pump-and-dump trades at your expense.

Which is as it should be, that’s why we follow the same general rules here at Stock Gumshoe that are standard with most of the publishers (don’t take money to write about stocks, and don’t trade stocks within a few days after we publish articles about them, on the off chance that we’d be profiting from the attention that we can sometimes bring to a stock — yes, we’re small, but even small websites and newsletters can move a penny stock pretty easily).

But anyway, I don’t know anything about this letter, other than the fact that it seems pretty new — and that they’re focusing on what they call “penny stocks,” which for some people means teensy weensy microcap stocks that actually trade for a few pennies but for most folks means stocks that are small caps (under $500 million or so in market capitalization) and trade for less than $5 or $10 — the kinds of stocks that are routinely ignored by institutional investors because they’re too small to trade or research efficiently.

Of course, us little guys have no such problems — which can theoretically give small investors an advantage if they’re willing to dig into little stocks, since you can sometimes find great operating companies or growth stories that investment banking analysts would have long since publicized if they were large enough to get that kind of attention. That, at least, is the argument behind pretty much any small cap newsletter, and the reason that many of us hear the siren song of the penny stock from time to time — the smaller they are, we hope, on bended knee and with clasped hands, the faster they can grow and make us rich … right?

So let’s indulge that “get rich” feeling for a moment, shall we? How do Gordon Lewis and co. pick these “penny stocks”, and which ones do they think are great stocks to buy now?

They say they have some special indicators and criteria for their picks — or, in their words …

“3 ‘X-Factors’ That Practically Guarantee You’ve Found The ‘Next’ Apple.”

And yes, I presume their copywriters have spent a few minutes with the lawyers — why else someone would put the word “next” in quotes, I can’t tell you.

But anyway, so what are those X-factors?

“X-Factor #1: You Better Have A Steve Jobs!

“People look at all kinds of crazy things when they’re deciding whether or not to buy a penny stock.

“Truth is, most could do a lot better by looking at just one key factor…

“Management.”

OK, I think we can all concede that there’s only one Steve Jobs — or there, was at least (rest in peace, Steve — and thanks for the great toys). But yes, management is important — lots of room for incompetence and fraud in little companies that don’t get lots of investor attention (though the little guys, of course, have no monopoly on ineffective management).

“X-Factor #2: Fire Up The Crystal Ball…

“This one is so simple, most penny stock investors completely overlook it.

“But recognizing a new trend or new market can spell ENORMOUS profits for small companies.

“This is how all the big boys like Apple, Amazon, and Google became big in the first place!

“It’s easy to apply this principle in the high-tech and internet sectors…

“But few realize you can also apply it to ‘old-school’ industries that have found a new market or use for their product.”

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