Dear Reader,
“...if you know a huge market is about to open up for its product. Not because more customers want the product, but because they have to have it! That will make a great penny share…”
I’d asked Tom Bulford a simple question in our regular weekly catch-up phone call. I wanted to know what characteristics a company would need to be his ‘perfect penny share’…
He told me the company would have a top quality product that was already in demand. It would be a high margin product so that the company made good profits on each unit sold. There would be little or no competition. Its finances would be strong, and yet its share price would be flat on the floor.
Then he told me he’d found a company that ticked all these boxes, but had something even more important. He explained that governments around the world are forcing a huge market to open up – a market that this one company is in a prime position to exploit.
Without any hesitation, Tom and I agreed that this company would be his top tip in the new edition of Red Hot Penny Shares. It’s his ‘perfect penny share’…
Tom also explained why he likes penny shares in general. He said it’s simply because the fortunes of these bold little companies can be transformed overnight. He sent me a few examples…
There’s more to penny share success than you think
On Monday, August 10, Tom said, “shares of Sabien Technology (ticker: SNT) jumped from 7p to 29p – that’s a gain of over 300%! The reason? Sabien, which for years had been developing a system that would make boilers use less energy, struck a distribution deal with Serco and British Gas.
“Just four days earlier there was a similar story. That day, the share price of Gulf Keystone (ticker: GKP) more than doubled – rising from 13p to 28p after it struck oil in Kurdistan.
And then there was Phytopharm (ticker: PYM). On October 13 its shares were languishing at 6p. A day later, after it had announced promising results of its drug treatment for Parkinson’s Disease, the shares were at 26p.
These are the sort of gains that Tom goes hunting for in the penny share market. And, he explains, you just don’t get this sort of return from the main market. Blue Chips just don’t move that quickly, no matter how good the news is.
“Banks have enjoyed a remarkable recovery this year,” Tom concedes. “But none of them has managed the sort of dramatic turnaround seen in penny shares. I can’t find an instance of any one of them climbing more than about 20% in a day.
“I have also looked at BP. On September 2 , it announced a “giant oil find”. The stock market’s reaction? The shares rose by a puny 4%.
“But suppose that BP had been a smaller company. Suppose it had been the size that Cairn Energy (ticker: CNE) was back on January 19 , 2004.
“That day Cairn revealed that it had struck oil in India. The result? Within 24 hours its share price was up by 49%.”
Tom went on to explain more about the attractions of these small companies in one of last week’s issues of his free Penny Sleuth.
“There’s a particularly interesting aspect to these shifts in fortune if you’re an investor. It’s that the shares which make a sharp and sudden move upwards normally continue to do well. Something has happened to them that is truly ‘transformational.’
“From being businesses that are struggling along with their fingers crossed for the future, they are suddenly in possession of something of real value.
“Whatever this something is, it’s going to bring in a lot of money and, crucially, secure their future.
“The stock market rarely appreciates the full implications straight away. Some investors, seeing the overnight jump in the share price, take their money and run.
“There is a period in which the short-term speculators exit and new long-term investors come on board. And you shouldn’t underestimate the long-term earning potential of penny shares...
“But whether you are a short-termist or a long-termist, if you want to get some bang for your buck, you need to stick to the penny share market.
Small cap equals big gains
“Partly it’s a simple matter of mathematics. Today BP is valued at £110bn. If BP is going to double its share price, it needs to create that amount of value – value that is equivalent to the GDP of Singapore.
“It has taken BP 150 years to get this far. Is it suddenly going to create £110bn of value overnight? No.
“But penny share companies are valued at just a few million. It is easy for them to create that amount of value overnight. A good oil strike can be worth hundreds of millions. A new medical treatment can be worth as much.”
Of course, the other factor that makes penny shares so exciting is that their fortunes can depend upon a single thing. That’s a good thing and a bad thing…
Typically these companies have not diversified. They have been working single-minded on one project. If it comes to fruition, will make a fortune and so will their investors. If they fail, the company could go bust. The shareholders could walk a way with nothing. It’s the thrill of the chase that attracts penny share investors.
Here at The Right Side, we advocate a bit of diversification. You should have some of those solid Blue Chips tucked away, just as we say you should own some gold.
But if you’re looking for some excitement… and the chance to multiply your investment many times over… then you should certainly consider putting some of your "high risk" money into penny shares.
By the way, I’m not sure if you’ve seen this already, but you can get access to all of Tom Bulford’s penny share expertise as part of your Alliance membership. Not only that, you’ll receive our other five top financial advisory newsletters, for as long as we publish them… all at a substantial discount. This is a great way to get substantial diversification in your investments, at our best ever rates.
But you only have three days remaining before this deal closes. Click here.
Good investing,
Frank Hemsley
For The Right Side
P.S.Broken down,this Alliance package is worth £1,644 per year if you were to pay the normal subscriptions to these 6 services. However, by joining the Alliance, you get them “for life” – i.e. as long as they are published – for a one-off fee of £2130 plus a small admin charge. Click here for details.
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