Sunday, June 1, 2008

Speculative Stocks - ie. Penny stocks / microcraps

I am NOT a fan of these stocks, in general, as most are STORY stocks (ie. sound great but there is little actual long-term sales/profits, which generate long-term shareholder returns & they typically have VERY poor financials with potential cash flow issues. <--potential bankruptcy). Stocks trade cheap for a reason is the bottom line.....You typically get what you pay for....
Microcap stocks typically have market capitalizations < $250 million or sales that

Having said that, if you find a good company/story that ACTUALLY starts to generate actual sales early on you can make a BOATLOAD of $$$. I've seen 20 cent stocks become $10 stocks again and again, $1 stocks go to $10 to $20, etc. It DOES happen.

Here are two companies I think are worthy of me putting $1000 into them. I'll tell you why I like them over the next two days and what I am doing....

Composite Technologies

1) wind energy play <--DeWind Turbines that is currently sucking capital out of the company....losing $$$$
2) great growth in one part of their business <--wire segment, growing at ENORMOUSLY fast rates

3) Recent CS (credit Suisse injection of capital) w/ potential for more

4) Upcoming wind conference (in attendance Tues/Wed)

5) Apparently some visits to 2 analysts in the next week (RBC/Jeffries)

6) Bottom Line is that by the end of June I should know if these folks have capital and whether or not they will get any orders / sales of wind turbines. That is really the play here since that part of the business is so capital intensive. If they don't I'll sell the shares and move onto another "MICROCAP stock"


Weak financials and a high cash burn rate. If the darn wind energy side of the business doesn't start generating substantial cash in the near-future this company could go under within a few years based on cash burn rates, etc. They would still have options but.....

In order to get BIG wind turbine energy sales (which the Chinese are now exporting) you need to be WELL funded, which they aren't. If they get some funding (potentially more dilution) they may get a 2nd life, which would actually generate MORE sales for the company and probably shareholders over the long-term.

Either way, this week the company's shares may get rocking or rolling. I bought $1000 at about $1.02 and, at $1.08 I am ahead but this just gives me an uneasy feeling buying stocks like this.....kind of like gambling.....At $1.08 their market cap is significantly ahead of a valuation that their sales warrant but, if they get one big order, it is OFF the races.
Dan Ross

No comments: