The Secret To Gains Of 514% With Penny Stocks

| May 29, 2009 | 0 Comments

As the famous saying goes, “Nothing in life is free.”  That may be true most of the time… but not always.

And sometimes, when investing, it pays to go against the grain.

Take for example a recent winner we had in our penny stock service.  We banked huge gains from a company doing nothing but giving away free stuff.  (Who would think you could make so much money from a company doing that?)

So why did I recommend buying this particular stock in the first place?

Because of the value of the business…

When I originally recommended this company to our subscribers, the company had a P/E of just 1 and a dividend yield over 28%.  These numbers tell us that you couldn’t give the stock away.  Buyers were nowhere to be found.

The company has a simple (and very profitable) business model.

They publish a free magazine.  It’s a valuable resource for anyone looking to buy a new home or rent an apartment.  I know you’ve seen the magazine stands at your local grocery store.  You might have even used one recently.

Apartment Guide and New Home Guide are published by PRIMEDIA (PRM), the stock we’ve been discussing.

The business is simple.  They get all the local apartments or new home developers to pay for advertising.  Then they give the magazines away for free.  It’s a very effective strategy.  Just look at their distribution numbers.

Last year PRIMEDIA distributed more than 39 million guides to over 60,000 locations throughout the United States.

Why are they so successful?

Because everyone is constantly moving.  Some are buying new homes. Some people are changing jobs.  Others might be in foreclosure. Whatever the reason, people are always moving.  The US Census Bureau estimates 40 million people move every year!

That’s a lot of free magazines to give away.

As such, the financial numbers look great.  Right before my recommendation, the company posted revenue of more than $76 million. They even dropped $1.9 million to the bottom line… pure profit. Management was aggressively cutting costs.

Now, the top line didn’t look like it would grow much… after all, their customers are in the housing industry.  However, they were looking very successful in a horrible economic environment.  Imagine what they could do when the economy improved.

That’s not all…

I also looked at their shareholder base.  It turns out PRIMEDIA was put together by Kohlberg, Kravis & Roberts (KKR), one of the largest private equity firms in the world.  KKR owns just over 58% of the company and has two board seats.  As I told my subscribers, “It’s like having an activist shareholder on the board, a good sign for investors.”

As you can see, the analysis of this situation was spot-on.  Our peak gain was over 514%.

Picking winners might seem easy.  But in reality, it’s a lot tougher than it looks.  Especially in the penny stock market.  But with solid research and a little courage, you can find some really big winners that others completely overlook.

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Category: Penny Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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