This was the early method of performing a lobotomy. And just 50 years ago, they were carried out not only on severely mentally ill people, but also on moody teenagers, or housewives who’d lost their enthusiasm for domestic work. Seriously. Over 40,000 Americans were lobotomized, often with catastrophic results.

Thankfully, they’re a thing of the past. But it made me think about how medicine has changed over the years and what practices were once acceptable. Just a few hundred years ago, for example, you wouldn’t have questioned the “doctor” for putting leeches on you any more than you do today for prescribing an antibiotic.

What other common medical practices will be outdated in the years to come – and more importantly what will replace them? As someone who follows the health care sector, I believe I have the answer to the next big thing in health care: Immunotherapy and regenerative medicine…

How Immunotherapy is Changing the Playing Field

Immunotherapy has been around for decades in the forms of vaccines, allergy shots, etc. It involves introducing something into the body to create an immune response. For example, when you receive a flu shot, you’re essentially training your body’s immune system to respond to specific infectious agents.

And then there are more serious diseases – like cancer.

Over the past few years, we’ve seen new cancer medicines receive approval, with even more in development.

With greater technology and intensive ongoing research, we may one day look back at chemotherapy (the equivalent of carpet-bombing your body in order to kill cancer) as barbaric as we do lobotomies.

And with regard to immunotherapy drugs, the body’s immune system specifically targets the cancer, typically resulting in fewer side effects than chemotherapy.

Several well-known cancer drugs already employ this technique – for example, Genentech’s Avastin and Herceptin and Bristol-Myers Squibb (NYSE: BMY) and ImClone’s (now Eli-Lilly) joint-partnership with Erbitux. All three have become blockbuster drugs for these companies.

Three Small-Cap Firms That Could Cash in on Immunotherapy

But there are also many small-cap health care companies engaged in immunotherapy research, which stand to make piles of money for shareholders if they develop a successful drug. Here are some names to look into…

• Dendreon Corp. (Nasdaq: DNDN): Prostate cancer is the most common cancer among American men and is the second-highest cause of cancer deaths. Dendreon’s leading drug candidate for prostate cancer, Provenge, could be approved in 2010.
• Cel-Sci Corp. (AMEX: CVM): The company’s Multikine drug, which treats head and neck cancer has completed Phase II trials and its scientists are currently working on an H1N1 flu drug, too.
• Northwest Biotherapeutics (OTC BB: NWBO): The firm has several drugs in various phases of clinical trials for brain, prostate and lung cancers, including DCVax-Brain, DCVax-Prostate and DCVax-LB for non-small cell lung cancer. It also has DCVax-Direct, which treats ovarian, head and neck cancer.

Three “Regenerators” for Your Health Care Sector Watchlist

In addition to immunotherapy drugs, the field of regenerative medicine is also flourishing and holds some excellent growth potential, as we’re still in the early stages of understanding the power of stem and other regenerative cells. Here are a few names to kick off your research…

• Cytori Therapeutics (Nasdaq: CYTX): The company already has a product approved in Europe (Celution 800/CRS) and Asia (Celution 900/MB) for breast reconstruction following a partial mastectomy. The firm is currently running clinical trials in several cardiac areas, too.
• StemCells Inc. (Nasdaq: STEM): The company currently has clinical trials in progress for drugs that treat diseases of the central nervous system and liver.
• Geron (Nasdaq: GERN): It’s involved in both immunotherapy research for cancer and stem cell investigation in spinal cord injuries.

Keep in mind that most of these stocks are very small, so their trading can be volatile. In addition, they may need to raise funds to aid research and development, so do your due diligence.

However, I’m confident that over the coming years, firms like these will be at the forefront of new, more effective and safer ways to treat some of the world’s worst diseases.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

Source: How to Profit from Immunotherapy & Regenerative Medicine

Keep this volatility tip in mind and you’ll be well on your way to profiting from the price swings…

It can be nerve-racking to watch a stock pinball. And if you own shares of any penny stock, you have to be able to spot whether or not the stock is taking a turn for the worse. But wild price swings don’t always mean that there’s cause for concern in your small-cap portfolio.

OTC Is Inherently Volatile

Volatility is inherent in any small-cap stock, but that’s especially true of stocks that trade over-the-counter, or OTC.

And now, with volatility higher than ever on the big boards – like the NYSE and the NASDAQ – as well, the volatility we’re seeing in the penny stock arena is unprecedented. That’s why we need to consider the cause of the volatility, because the reason for a price swing can often tell us quite a bit about where prices are headed next.

First, you need to look at the bid and ask.

The bid – the price that investors are willing to pay for shares – and the ask – the price shareholders are willing to sell shares for – are key parts of how shares of a stock are priced. With blue chips, the difference between the bid and ask price (known as the spread) is tiny, but for penny stocks spreads can be enormous.

Just look at WordGate Communications (OTC: WGAT), which has a 4 cent spread as of Friday morning. With WGAT currently trading at $1.04 per share, that spread represents almost a 4% of the company’s share price – and many OTC stocks have much higher spreads.

That’s largely a product of volume, which is the number of shares that trade hands during trading. Because investors set the market prices of stocks by their buying and selling activity, all any stock needs to make a serious move (up or down) is trading volume. That’s why it’s exciting to find a stock that can make a big move without a lot of extra buying power behind it.

You may have heard a broker or trader talk about a stock that “moves on air.” Simply put, it doesn’t take a lot of extra buying to get shares to blast off. That’s why traders are always looking for “low floaters.” These are the stocks that don’t have a lot of shares that are unrestricted and available for trading on any given day. That’s often true of penny stocks – with relatively low trading volume on any given day, small share transactions can be a major component of share price.

That’s why OTC stocks are so powerful. Little bumps in volume can translate into huge moves in the share price. That was certainly the case with WGAT – shares have rallied 134% in the last month alone thanks to a volume-induced push. And other OTC plays, like IMAGING3 Inc. (OTC: IMGG) have fared even better, pushing 1,580% in the last thirty days.

That’s performance that you’ll only find with bulletin board stocks…

When investor interest returns and volume picks up — thanks to positive news, earnings or guidance — the spread should shrink and the stock should move up nicely.

Just look at the real-time streaming quote generator on your online brokerage site. Type in your favorite blue chip and you’ll see a flurry of activity. Thousands upon thousands of shares will trade in a matter of seconds right before your eyes.

Now type in WGAT or IMGG – two OTC stocks that we’ve been getting quite a bit of reader mail about recently. If it’s a busy day, you could see the bid or ask tick up and down a bit, with a few thousand shares exchanging hands over the course of the morning. But then there are the slow days, when the stock barely moves at all…with a painfully large spread.

That’s nothing to worry about. Just remember this: If there’s no unusual volume backing up a drop, chances are the move won’t hold. Sometimes you’ll see a “shake” — the stock price taking a dive on the sale of just a few hundred shares. Don’t fall into this trap and sell…prices will more than likely return to previous levels sooner, rather than later.

Cheers,
Jonas Elmerraji

Source: Why Volatility Equals Profits for Small-Cap Stocks

With the small-cap research tool I’m about to show you, you’re well on your way to seeing how the market moves ahead of the herd.

Here’s everything you need to know…

A while back, I wrote to you about our Small-Cap Recovery Index. The index is composed of fundamental data from 100 small-cap stocks, as well as economic factors like unemployment and personal savings rate.

It’s designed to give us a glimpse at signs of recovery for the stock market.

While the market has rebounded in a big way since it bottomed in March, many investors are concerned that stock prices are already getting out of whack. But we’ve designed the Small-Cap Recovery Index to go beyond share prices.

Unlike major indexes — like the S&P 500 or small-cap Russell 2000 — ours isn’t a typical stock index. While hundreds of stocks are included in the index, stock prices actually have a relatively small effect on its daily movement. The majority of the index is based on the latest available fundamental performance.

But while gauging how “healthy” the market is can be very valuable, the Small-Cap Recovery Index provides us with considerably more data. In fact, as we continue to watch the index, we hope to use the information it provides to not only peg where the broad market is headed, but which industries hold the keys to growth.

We can accomplish this thanks to the predictive power of small-cap stocks. You see, historically, penny stocks lead the stock market out of recession. “From 1943–2007, according to one analyst, small companies outperformed large companies by more than 50 percentage points in the three years following a recession, including the one following 2001,” explained Ken Kurson in an article published on Esquire.com a few months back.

By monitoring how small caps perform fundamentally and technically, we can essentially predict where more major indexes — the S&P 500, for instance — are headed.

Now, 12 weeks into collecting and analyzing our data, we’ve already caught some indications that the index is doing its job. More on that in a bit…

A Look at the Small-Cap Market

The chart above shows the Small-Cap Recovery Index for the last 12 weeks. The index, which is calculated daily after the market close, is based on a 100 scale — its current value of 107.4 means that the Small-Cap Recovery Index has gained 7.4% since we began tracking it.

While a high number for the S&P 500, which just measures share prices, could suggest that stocks are overvalued, when it comes to the Small-Cap Recovery Index, bigger is definitely better. That’s because a higher number means that the small caps that make up our index are performing well for investors and — more importantly in this environment — performing well from a financial and economic perspective.

In the past couple of months, the index has seen its value increase materially, which is a very good thing. But while the SCRI’s value gives us a good idea of how small caps are performing, it doesn’t do a very good job of actually predicting where the markets will move next. That’s where the oscillator comes in…

The Small-Cap Recovery Index Oscillator

The Small-Cap Recovery Index Oscillator, which is based on the index itself, measures the divergence between the performance of the Small-Cap Recovery Index and the S&P 500.

While that sounds pretty complicated, it’s actually a very simple concept. The rationale is that the S&P 500, which is a pretty good indicator of the market itself, shouldn’t move significantly more or less than our Small-Cap Recovery Index. And because fundamental data that move ahead of the market — like sales and unemployment — are factored into our index, our index should set the direction of market movements first.

When things are stable, the oscillator should sit around 0 — meaning that there isn’t a major difference between our index and the S&P. But when it moves very high or low, it sends a signal that the S&P, which doesn’t have fundamental economic data to keep it grounded, should move back in a direction to push the oscillator back down.

We’ve actually come up with a math-based methodology to place bets on the market using the data that the oscillator spits out.

And while the specifics are too rigorous to detail here, we’ve determined that if you had used those rules to invest in the ProShares Ultra S&P 500 ETF (NYSEArca: SSO) or the ProShares UltraShort S&P500 ETF (NYSEArca: SDS), depending on the buy or sell signal, you would have made 36.03% in just six weeks.

That’s an annualized gain of 312.26%!

And right now, with the oscillator (the blue line in the graph below) high, it suggests that the market’s buying frenzy is coming to an end. That’s not to say that the oscillator can’t be wrong — we’re still in the early stages of collecting data and testing its accuracy.

So what’s the SCRI Oscillator telling us right now?

While it’s good that the SCRI has increased in the last 12 weeks, a quick look at the oscillator shows us that the S&P 500 has increased much more quickly — that’s actually a bad thing for the market because it means that investors have overvalued the S&P against the fundamentals of the market.

And already, we’re seeing the S&P 500 start to decline to fall back in line with the Small-Cap Recovery Index. Unless big stocks improve their fundamentals enough to match the small-caps, it’s time to expect a tumble in the S&P back to SCRI levels. We still have considerable data to collect before we begin to use SCRI data in our stock picking methodology, but right now, it’s clear that the index could soon become a very powerful tool in our investment arsenal.

Cheers,
Jonas Elmerraji

Source: The Only Tool You Need to Predict the Market’s Moves

Those gains came from companies you are probably already familiar with: Roche Holdings, Wal-Mart of Mexico, and Adidas. These three companies have a combined market cap of $177 billion, yet produced enormous penny stock-sized gains.

Beyond being large, international, and profitable, these three have something else in common: none of them trade on a major U.S. exchange.

Roche is Swiss, Adidas is German, and Wal-Mart of Mexico is a southern neighbor. So unless you live in Switzerland, Germany, or Mexico, you might be wondering how you can get in on opportunities like these.

Until a few years ago, we wouldn’t have had an answer for you. Luckily, the international investment landscape made at least one change for the better in recent years…

67 Companies That Are 3.4 Times Larger Than the Whole OTC Market

You may already be familiar with the Pink Sheets, now known as the Pink OTC Markets. The Pink OTC is just the information center of the over-the-counter market. It’s not actually an exchange like the New York Stock Exchange. Instead, it just gives individual investors access to OTC broker-dealers. Broker-dealers are the people that actually trade these securities.

One common criticism of OTC companies, especially those on the Pinks, is their lack of financial reporting.

To get listed on the NYSE, AMEX, or NASDAQ, you have to submit on-time, regular financial results to the Securities and Exchange Commission.

OTCBB-listed companies are required to report, but not as much as others.

Pinks, on-the-other hand, don’t have to report anything… ever. That’s why large institutional investors — like investment banks and mutual funds — aren’t usually allowed to touch these companies. Individuals like you, however, can trade Pinks using a simple online broker.

In 2007, the people at Pink Sheets brought us a new classification system to help us evaluate these often-misjudged securities: the OTCQX.

The OTCQX is a listing service with NYSE-like requirements. A few of these include minimum ownership requirements, trading volume, regular financial reporting, and ongoing business operations. These seem like a no-brainer, but millions of dollars are thrown at companies in the regular Pink Sheets that don’t meet any of these requirements.

This new OTCQX also opened another door… this one on the global stage.

Many foreign companies don’t seek listing their securities on the NYSE or AMEX because of these exchanges’ stringent filing requirements — not to mention the obscene fees they charge. With the OTCQX, these companies finally have another access point to U.S. investors.

Most OTCQX International-listed companies were previously traded on the Pink Sheets. In many cases, individual investors took it upon themselves to do this. Meaning the company didn’t have to draft a U.S. investor prospectus or sign a formal American Depositary Receipt bank agreement. U.S. investors and investment banks would literally travel to these companies’ home-country exchanges, buy shares, and trade them on the Pinks. With the OTCQX, and its massive success, these companies are now actively seeking this kind of trade volume.

Take a look at the traffic the OTCQX has spurred compared to its OTC counterparts:

More Than 3 Times More Dollar Volume Than Its Competitors Combined

As you can probably tell by now, the companies we discussed are all listed on the OTCQX International. But they are still on a relatively short list. According to the OTCQX website, there are only 53 in this category — out of only 67 total OTCQX-approved companies.

In coming months and years, these numbers will increase. As you can see, investors are already benefiting from this short list.

We have one OTCQX International company currently catching our attention. This $29 billion company is a global leader in its industry. It’s also growing at double-digit rates — 53% in the first half of this year!

If we decide to pull the trigger on it, we’ll do so to our Lifetime Income Report readers.

Sincerely,
Jim Nelson

Source: Grab Secret Penny Stock Gains from the World’s Best Blue Chips

You see, as a small-cap investor, you’ve got very different concerns compared to those who only buy and sell blue chips. One of those concerns is order execution. And most likely, it’s something that you haven’t heard about anywhere else…

That’s because for the most part, order execution is a term that’s relegated to the big players – firms like Goldman Sachs and T. Rowe Price that have teams devoted solely to proper order execution. But penny stock investors have many of the same order execution concerns on tiny, thinly traded stocks that the big Wall Street firms do with companies like GE and Microsoft (NYSE:MSFT).

But before we get down to brass tacks, let’s take a look at what order execution means…

Order execution is the process that swings into action when you try to buy or sell a stock. When most investors place an order with their brokers, execution is nearly instant. But when small-caps are concerned, thin trading volume can play havoc with share prices and with your profit or loss.

It’s important to remember that as its name implies, the stock market is a market. That means that stocks move based on supply and demand, and not necessarily their intrinsic value. While that works well for heavily traded stocks like Exxon Mobil  (NYSE:XOM) or Wal-Mart (NYSE:WMT), where thousands of investors keep shares around their fair value by buying and selling millions of shares each day, some small-caps only trade a few hundred shares during any given trading session – some trade even less than that.

As a result, penny stock share prices can sometimes deviate pretty far from where they should be. And while that can provide prescient investors with a whole lot of profit potential, it can also be a big problem for those who don’t protect themselves.

Understanding Bid-Ask Spreads

Like mentioned before, stocks trade in a market. In markets, prices are set by the participants – in this case individual and institutional investors who buy and sell shares of stock. There are two pieces of price information for any stock: the bid, which represents how much investors are willing to pay for a stock, and the ask, which represents how much current shareholders are willing to sell for. When those two numbers intersect, a trade happens.

The bid and ask aren’t hypothetical numbers – they represent real outstanding orders.

For any stock, there’s a separation between the bid and the ask, knownas the spread. If someone’s willing to sell shares of Bank of America (NYSE: BAC) for $16.84 and another person’s wiling to buy shares for $16.83, your bid-ask spread is one cent. The spread is kept small by the large number of traders in the stock, who volley back and forth maintaining a tight range for BAC’s share price.

But for a stock that’s more thinly traded, spreads can be huge. That’s a big problem for small-cap investors because a spread that span’s 2% to 3% of a stock’s share price can essentially shear that kind of performance from their position from the get go.

And starting out 3% in the red from the second you buy shares of a stock isn’t a good deal…

When you’re missing out on 3% of every trade, that disadvantage begins to add up big time. But follow these three secrets, and you can ensure that you’re making out on your small-cap trades:

1. Love Liquidity

The best way to avoid being burned by a lack of liquidity is to only trade stocks that have enough trading activity to keep share prices in a reasonable range. And while that may sound limiting to some investors, the truth is that there are ample investing opportunities in small-caps that still see decent trading volume on the market.

As a general rule, if a stock doesn’t trade thousands of shares during any trading day, it’s best to keep your distance.

2. Use a Limit Order

Market orders are a bad idea for small-cap investors. That’s because they automatically execute at the price necessary to make a trade, meaning that every time you initiate a market order to buy shares of stock, you’re rising up to meet the price the seller wants. With huge spreads common in small-caps, market caps are a sure way to lose money from the get go. Instead, use a limit order.

Limit orders are essentially market orders that only execute below a certain price when you’re buying shares, or above a certain price when you’re selling. They’ll help ensure that your entries and exits are happening at prices you set, not the other party.

3. Beware of Promotions

Stock promotion is a popular way for small-cap companies to increase daily trading volume. The practice, which often employs dubious ethics, involves hiring firms that spread good news or sentiment about a tiny stock. But being on the wrong end of that strong sentiment can be a very bad thing. Since volume in small-caps is often so thin, the huge volume surges caused by stock promoters can sometimes move a stock’s share price by more than 20%.

To avoid getting into stocks that are being manipulated, check out promoters’ favorite places – investing message boards and press release websites – for over hyped language that goes beyond what one of the company’s shareholders would spout off. If you see the same language in multiple locations, chances are that a promotion is underway.

The stock market is a tricky enough place to operate. After all, there’s no way to guarantee that the next stock you pick will deliver 100% profits. And there’s no telling whether the company you just added to your portfolio is a sure thing. But even with all of that uncertainty, you don’t have to give away your gains before you place a trade. Now you’ve got three ways to make sure that order execution mistakes don’t squeeze your profits.

Cheers,
Jonas Elmerraji

Source: 3 Secrets to Profitable Small-Cap Order Execution

The majority of the market is deep in the red today as investors rethink their recent buying spree. It is painful to watch, but if you know where to look there are signs the always-interesting small-cap market is still doing what it does best, making smart investors rich.

We have been researching and writing about the Chinese market a lot over the past couple of months. That is why it is no surprise to see a company like Hong Kong Highpower Technology (AMEX:HPJ) near the top of the day’s leader board.

Shares of the Chinese rechargeable battery maker are surging by 15% today as it makes up for ground lost last week.

The action can teach us an important lesson about small-cap investing. The world’s up-and-coming companies are often shielded from the overall market action. With a beta of nearly zero, Highpower has shown it wants nothing to do with the rest of the business world.

Last week, a drop in the equities market put pressure on the $20 million company. But this week the market is fixing its mistake as investors hop in on the undervalued play. This is a common theme in illiquid stocks that can force prices to move drastically in both directions and is used by smart investors to maximize their profit potential.

If you want to take advantage of the small-cap market’s pendulum-like swings, take a look at Quigley Corp. (NASDAQ:QGLY). The homeopathic drug maker was up by as much as 110% today, without the help of any newsworthy events.

That is an attention getter

Prices have spiked and are already on the decline as orders are filled and equilibrium is met. Chances are we will see further declines over the next several days.

But that is not the most exciting aspect of the company’s trading action today.

As a self-proclaimed trading volume expert, today’s spike in buying action proves the stock’s future potential. Many, many times during my career, I have gone back through a stock’s volume tables, circled a date and said, “That’s when it happened.”

Today’s action from Quigley is likely to be one of those events. Keep an eye on this one. Something good is on the way.

Finally, Nanometrics (NASDAQ:NANO) is bucking the market trend, surging ahead by as much as 20%. It comes thanks to an upgrade by Openheimer. The mutual fund manager boosted its rating from “perform” to “outperform.”

While these sudden pops are eagerly welcomed by shareholders, they do little to help on potential investors. The spikes are rarely sustained and the analysis is almost immediately shrugged off by the market.

In my experience, most big-firm analysts are typically several months too late to the game (or at least in divulging their participation). Today’s action from Nanometrics solidifies my belief. After all, shares of the semiconductor specialist have surged by over 325% since last November.

A tad bit late with the upgrade? You betcha.

The small-cap market has done it once again, solidly producing winners when the big boys are dropping like Obama’s popularity. With market manipulation on the rise, increased regulations and a government working overtime to create a new economy, today’s theme is going to become increasingly popular.

Small caps should not be your entire portfolio, but they deserve a larger share now than ever.

Source: Three Penny-Stock Winners in a Losing Market

At that time, we recommended readers go the route of John Templeton and pick up some penny stocks in the S&P 500. Moreover, just ten days later readers who jumped in were rewarded with a 437% gain.

We could be setting up for a similar situation.

The stock split does change the dynamics – mostly emotional – of the current stock plunge. Investors feel better about selling at $9.00 than they did at .40, even though the value might be the same.

On the other hand, we could see this stock slip much lower that it did in March simply because the dynamics of short sellers and a higher price come into play.

While the news today has been centered upon the government approving bonuses for AIG employees, it’s not terribly important. Most of the big news concerning AIG, and the main reason it has fallen so much, is because Citigroup (NYSE: C) reported that AIG might have no shareholder equity.

Ouch. But how does that change things?

Regardless of whether this stock sinks lower – or much lower – as an investor/speculator considering the long-term movement of this stock you need to ask yourself two things.

One, are the long-term prospects of this stock any different than they were in March? Two, do you think the stock will go bankrupt? If you can easily answer these questions, than you have a good idea of why AIG could be another great short-term investment.

We’ll be keeping our eye on this one. Today the price is down to $8.5 – and as the stock price moves closer to $7, the more interested we’ll be.

Source: As AIG Sinks, Its Value Rises

Without some big event or monolithic development coming down the road, there’s no reason for investors to care about these tiny companies.

You see, the majority of investors are only interested in making 5%–10% per year. That’s pretty much the maximum you can expect to gain if you are investing in blue chips. Here at Penny Sleuth, we view the stock market a little differently.

We want the money multipliers — double-, triple-, even quadruple-digit gains. For that to happen, we need some kind of spark to set our penny stocks apart from the rest. After all, there are currently over 6,000 to choose from.

So, what kind of catalysts can make a penny stock pop? Let’s look at a couple big ones:

• Commercialization — After years of research and development, and sometimes painstakingly long clinical trials and efficacy tests, there comes a time in any successful start up company’s life when it needs to actually manufacture and sell its products or services. Just take a look at what happened to Tata Motors Ltd. (NYSE: TTM)…

As you might already know, this was the growth story of last year, and it continues to today. Tata is the Indian car giant that made its mark on the global economy, when it released the world’s cheapest car.

In March of this year, the company commercialized a new product. It started selling the Tata Nano in India. Investors were so excited by this car design, they started buying enormous amounts of Tata stock. Since the company started pre-selling the car, shares are up 165%.

• Buyout Candidates — Sometimes, it’s as simple as waiting for a larger competitor to buy the penny stock. When one company buys another, they agree on a price. Many times, that price is much higher than what the soon-to-be-purchased company’s share price is currently trading. This gives those shareholders an instant gain.

A few weeks ago, I discussed the consolidation of the soda industry. Both PepsiCo Inc. (NYSE: PEP) and Coca-Cola Inc. (NYSE: KO) are buying out their bottling operations to save on expenses and double spending.

Pepsi is in the process of buying its two largest bottlers: PepsiAmericas and Pepsi Bottling Group. Shares of both of these companies popped more than 22% the day it was announced. From their March lows, PepsiAmericas is up 67% and Pepsi Bottling Group is up 94%.

• Legal Battles — The last of the major catalysts is court rulings. In many cases, a simple ruling can make or break a penny stock. Hardly any company has been entrenched in the courtroom like TiVo Inc. (NASDAQ: TIVO).

We wrote about TiVo back in December 2007. Its revolutionary digital recording technology is both a huge moneymaker and a legal nightmare. You see, plenty of other competitors claim rights to certain patents TiVo profits from.

It takes a tech geek to decipher the differences between most of its intellectual properties, which isn’t usually a prerequisite for a judge. For the last five years, TiVo has been tied up in court with its competitor EchoStar Communications Corp (NASDAQ:SATS), now part of Dish Network Corp. (NASDAQ:DISH), over a patent dispute. The court finally ruled in favor of TiVo, rewarding the company $103 million plus interest.

Upon the day of the ruling, shares of TiVo jumped 53%. This gain sent TiVo’s stock over $11 per share and out of penny stock land. That just a drop in the bucket of what a lawsuit ruling can do for a company. Imagine what $103-plus can do for an even smaller company…

These are just four types of things to consider when thinking about buying a penny stock. But even if you do have the perfect catalyst lined up, that’s only the beginning.

Sincerely,
Jim Nelson

Source: How to Tell When a Penny Stock Will Pop

While safe, stable stocks are usually the first place investors flock to when markets turn sour, maybe you should be taking another look at penny stocks. As “blue chips” like GM and AIG crumbled under the strain of the credit crunch, a large number of penny stocks were making a small group of investors a fortune.

If the true test of an investment is a bad economy, what better time was there to demonstrate that theory than the last 12 months? Over the course of the last year, we’ve seen the market falter, absorb bad news, and crash harder than it’s fallen in three generations. And while stocks took a big hit across the board, here’s a look at the small stocks that fared well:

A Mix of Businesses

The stocks listed above have been limited to the highest performing small-caps over the last 12 months that have a decent trading volume. As you can see from their names, there’s a pretty varied mix of businesses in the group…

Like Explorations Group (OTC: EXGI), a company that acquires and manages parking lots and garages in New York City. Or Zagg (OTC: ZAGG), a company that makes protective coverings for iPods that I mentioned here in the Penny Sleuth last week.

While there isn’t any single industry that rules this list, these stocks actually do have something important in common – they each have real, revenue-generating businesses.

That may sound like an obvious thing to look for in a stock, but in the penny stock universe, it’s not uncommon to run across hundreds of shell companies that actively trade over-the-counter. Some of those shell companies have plans to enter some exciting businesses; others are a money pit for investors who are willing to believe their hype.

Getting Your Stock on Next Year’s List

If you want to dodge the hype and find a penny stock that will make next year’s list, here are a couple simple rules to keep in mind…

For starters, only invest in penny stocks that have a real, revenue-generating business. It’s true that people have made millions by speculating on long-shot penny stocks, but more people have gotten burned trying to recreate their successes.

And know when to sell… Lots of penny stock investors see 200%, 500%, even 1,000% gains on a stock but still end up losing money in the end. It’s not because they didn’t plan their buys properly…it’s because they got greedy!

It doesn’t matter how much money a stock makes if you’re not ready to press the button and realize those gains. That’s why you need to set solid exit points for any penny stock you buy.

It’s human nature to want to hold onto an investment as you see it climb with no end in sight, but doing that is a great way to miss out if that trend turns around. When you analyze an investment, think about a logical exit price and sell for that. Picking solid exit points will become easier as you develop your investing chops.

Cheers,
Jonas Elmerraji

Source: This Year’s Top 10 Penny Stocks

“Why don’t you ever recommend penny stocks?” one subscriber asked. “After all, it’s easier for a 50 cent stock to go to $1 than for a $50 stock to go to $100.”

For starters, it’s not.

Over the years, dozens of studies have shown that lower priced stocks don’t do better than higher priced stocks. In fact, they do considerably worse.

Ironically, while it’s not easy for a 50 cent stock to go to $1, history shows that going from 50 cents to zero is like falling off a log.

Reasons Why Penny Stocks Stink

There are other reasons I won’t touch penny stocks with a barge pole:

• For starters, the vast majority of tiny, unprofitable companies are such ridiculous long shots they don’t even merit your attention. Most of these companies have little if anything in the way of profits, not to mention the first prerequisite: sales.
• Secondly, you could drive a cement mixer through the bid/ask spread on many of these shares. If a stock is offered at 30 cents and bid at 24 cents, for instance, you’re down 20% as soon as you get your trade confirmation. (And that’s before commissions.)
• Thirdly, penny stocks are thinly traded and easily manipulated. You may buy a penny stock and see it zip higher. But then try getting out. It’s pretty disheartening to know you can drive down the price of your stock simply by selling a couple thousand shares at market.

And then there are the outright scammers…

Penny Stock Scams & Penny Stock Promoters

Often referred to as a “pump and dump,” a penny stock scam is when the insiders talk the stock up on one hand while bailing out like there’s no tomorrow on the other. That’s usually because despite the great story – and make no mistake, the stories are always fabulous – the company’s genuine business prospects are usually nil.

But penny stock promoters want you to trust them, to believe in the hot tip.

If you’re going to evaluate a penny stock, here’s how the penny stock promoters would like you to do it:

• By recognizing the multi-billion dollar market they intend to operate in.
• By considering the enormous profits they’ll generate when their technology is finally commercialized.
• By noting the proven reserves of the mining company operating next door.
• By the preliminary results of their Phase I trials.
• By any criterion you can think of except what the company is actually earning… Because that figure is virtually always zero.

A Few Basic Penny Stock Precautions

If you insist on discovering these lessons for yourself, if you doubt my words, or for some reason are drawn to penny stocks like a moth to a flame, at least take a few basic precautions.

Start by reading the company’s most recent quarterly or annual report…

• Does it have sales or earnings?
• What kind of debt is it carrying?
• How long has the company been in business?
• Who are the people behind it?
• What is their track record?
• What is their rap sheet?

In other words, if you’re going to roll the dice, make sure it’s a genuine speculation, not just a mindless crapshoot.

Also, take a look at what the insiders are doing. If the insiders – the ones who seem unable to contain their enthusiasm for the company’s near-term prospects – are dumping the stock en masse, you know all you need to know.

Run.

Some will say I’m unduly pessimistic. (Penny stock promoters, especially.) And, clearly, a few successful companies did start out as penny stocks.

But for every success story there are hundreds of penny stocks whose charts bear an uncanny resemblance to the last flight of the Hindenburg.

In short, there are plenty of smart ways to invest your money. Toying with penny stocks, in my view, is one of the dumbest.

Source: Penny Stocks: The Worst Investment You Can Make