Penny Stock Investing Tips
[Today’s article is written by guest editor Robert Morris. We welcome Robert as the newest member of our research team. As a small company specialist, Robert will focus on the micro-cap and penny stock markets.]
Have you ever dreamed of “finding the next Microsoft”? Fantasized about riding a tiny stock for thousand percent gains or more? I know I have. There’s no greater thrill than seeing your penny stock grow up into a ‘respectable’ blue chip. (Except maybe raking in the huge profits!)
Unfortunately, these monster winners aren’t easily found.
You see there are literally thousands of small companies in the marketplace. They all seem to tell a great story and promise untold riches. It can be hard to know which ones will survive.
For every company that becomes a market leader there’s hundreds that go bankrupt. Finding tomorrow’s big winners is a lot like panning for gold. You have to sift the golden nuggets from the worthless grains of dirt.
But, what do these nuggets look like?
Not an easy question to answer. I spent years trying to develop a reliable system to separate the nuggets from the dirt. I read every book, magazine article, and website on penny stock investing I could find. Analyzed thousands of stocks over various different time frames. And tested dozens of different investment strategies.
What I found might shock you.
Everyone knows that all gold shares the same chemical composition, no matter where you find it or its size. The next big penny stock winners are no different. They share similar qualities too.
If you know what characteristics most big winners share, you can limit your investments to companies with those characteristics… greatly improving your chances of hitting a homerun.
Unfortunately, I don’t have enough space to cover all of these ‘characteristics’ today. You’ll just have to settle for one that we find quite a bit.
Homerun Characteristic #1: Innovative Technology
This has probably caused more stocks to skyrocket than just about anything else – a new and different technology. Innovative technology can provide the all-important competitive advantage that so many companies seek.
This is important because…
A competitive advantage leads to rapidly rising sales, profit margins, cash flows, and earnings. For investors, these are the things dreams are made of – and can propel stock prices into the stratosphere.
Don’t believe me? Here’s a real life example.
Luminex (LMNX) is a small biotechnology company in the $20 billion clinical diagnostics market. It develops biological testing systems for the life sciences industry. Pharmaceutical companies use Luminex’s technology to discover new drugs.
In 1999, Luminex developed an innovative approach to bioassays called xMap Technology. A “bioassay” is a type of test to see how effective a new drug treats a disease at the molecular level.
I don’t want to go into all the scientific details here but suffice it to say – these bioassays are crucial for developing new drugs.
And Luminex came up with a way to consolidate and standardize these tests. An innovative technology to be certain.
So how did this breakthrough affect Luminex?
The numbers speak for themselves. Net sales grew 42% per year over the last 5 years (compared to just 14% for the industry). In addition, the company posted a profit in each of the last 5 years. Unusual for a biotech company.
This sounds all well and good, but what about the stock?
In December 2002, Luminex was trading for a mere $3.50 a share. Over the next year, its shares quadrupled to just under $14. A 300% return in less than 12 months.
But the story doesn’t end there.
The shares recently hit another high of $27. A 671% return in less than 6 years – an average annual return of 112%.
Not too shabby.
The Luminex story demonstrates how innovative technology can fuel a company’s growth… and more importantly its stock price! It’s definitely one of the characteristics you’ll want to look for in your next penny stock…
Category: Penny Stocks
