Beware the “Blue Chip” Penny Stocks

Let’s play that good old-fashioned psychologist game, word association.  We will throw out a company name, you make note of the first thing that pops into your head.  Level 3 Communications (LVLT), American International Group (AIG), Sirius XM Radio (SIRI), Tenet Healthcare (THC), Fannie Mae (FNM), Infineon Technologies (IXF), Genworth Financial (GNW), E*Trade Financial (ETFC), and Coeur D’Alene Mines (CDE).

Done with that group?  Okay, let’s add some others to the mix:  Unisys (UIS), Rite Aid (RAD), Ballard Power Systems (BLDP), Citigroup (C), and Blockbuster (BBI).  Think about the first word that popped into your head for each of these – was it penny stock?  Odds are it wasn’t, because not many people think that companies with market caps as large as these could be penny stocks.  However, all of these companies are trading under $1 currently.

Penny stocks have long been enticing to investors as potentially holding a major potential reward – and that is the problem here, the word potential.  There is an old country adage that potential is another word for failure – but we’ll take a look at that in a minute.

What is alluring to many novice investors is that you could own a share of Level 3 for less than a dollar – same with a share of Coeur D’Alene or Citigroup.  However, does the potential loss outweigh the reward?  There are 1000s of trading accounts in America filled with stocks bought under $2.00 that are now worthless.

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Many different definitions exist for penny stocks, but the one constant is that the stock is low-priced and often holds a small market cap.  Interesting, by following this definition, Citigroup would likely not be a penny stock, nor would any of the other names mentioned earlier.  But yet they are trading below $1, so they inherently are very risky.

That said, you can own shares of former market powerhouses for less than a buck – is it worth a shot?  Let’s take a look at a chart of Citigroup.  This is a daily chart spanning back to early July 2008.  The stock’s near-term high of $23.50 was hit in October 2008, but then the stock was hit – hard.  With the stock wallowing under a dollar, is this penny stock a buy?

In general, the answer would be no.  Stocks under $5.00 are generally high risk, under $2.00 are very high risk, and under $1.00 are usually going to 0.  Many micro-cap companies with shares under $1.00 (the kind you get random “hot tips” about) are in fact actually scam/sham/shell companies, whose shares are being manipulated by a group.  Many mutual funds cannot even buy shares of companies trading under $10.

In the unusual case of gigantic companies trading under $1.00 that we are seeing today, the answer of whether to buy these is also basically no.  These companies are not in general going out of business — but what will likely happen (what the market is pricing as an extremely high likelihood of happening) is that the equity (common stock) will go worthless, the company will re-organize, pay off debtors (to some degree), then either re-issue new shares eventually, go private, or merge.  But the common stock holders get nothing in most all cases.

Could some of these former blue-chips trading under $1 come back?  Certainly.  But the odds are very strong that they will not.  So beware the bottom-fishing on these types of names, unless you are prepared to deal with the stock going worthless.

Many traders fall for the allure of the penny stock, especially when they first begin investing.  They figure they can buy 1000 or more shares of one stock vs 10 of another.  However, if that penny stock goes to zero, you still lose all the $ you put in.  So tread very lightly and do all the research you can before dipping a toe into the penny stock pool, even for the big names.

There is a reason penny stocks are penny stocks, perhaps it is poor management, poor business plans, poor execution of said plan, a violent economic turn, too much debt, or just an avalanche of short selling and negative sentiment.  Whatever the reason, make sure to perform your due diligence when it comes to speculating in extremely low priced shares.

Originally published here.

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Scott Downing

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Investing in commercial property is a great way to invest your money. There are many alternatives to investing in commercial property which makes it good for every type of investor to get involved.

So what are the options available for those interested in commercial property?

Some of the options you may already know exist, lets look at some,

Listed property trust is the simplest way to invest in commercial property, all you have to do is open an account with a stockbroker, deposit some money and then place an order. Listed property trust can be found on the stock -market, they invest in a wide range of commercial property i.e main office buildings, shopping centres, as well as industrial and leisure properties.

The trust manager chooses properties and is responsible for the maintenance, renovation, and for collecting rentals.

Property securities are managed funds which invest in a list of property trusts. This option is very good for somebody who is unsure which trust is appropriate. Purchase is through a prospectus.

Another simple way to invest is public property syndicates , with application via a prospectus. The downfall is they require a large minimum outlay and you are locked into the investment for the duration of syndicate unless you can find someone to buy the investment from you.

If you have research the market and have some acquired knowledge then direct property investment could be for you. You can also buy direct property through a private property syndicate.

Mortgage funds are managed funds that lend money over property. The investor will be offered security and returns that are a little higher than a bank term deposit but there are no capital gains.

Commercial property is thought of as office, retail and industrial but as an investor you need to be aware of the many options available to you. Health care, child care and retirement properties are great examples, also parking lots , storage facilities.

An article read “Americans regard self storage as an absolute blue chip investment and is considered the safest real estate based investment in the United States”

So when is the right time to invest in commercial property?

If you are a participant in the share market you would be aware of the “investment clock”, which its purpose is to show how the economic cycle works.

An overheating economy is followed by higher interest rates and falling share prices, when the economy declines so does interest rates and shares begin to raise again.

Here is a guide to the way commercial property could fit with the economy;

The economy starts to slow. Direct properties stop raising and may even decline. The authorities inject liquidity into the economy. The stock market and listed property trusts rise. The economy begins to rise. Direct property begins to rise Inflation may also rise and interest rates rise The stock market and listed property trusts fall.

American research has identified four phases based on economic and supply and demand.

Phase One is when the market is generally in a condition of oversupply, due to a weak economy and too much construction from when the economy was strong. This is the bottom of the cycle.Vacancy rates will be high and rents would be falling. During this period new construction will cease, while demand slowly starts to grow again.

During phase two new spaces will continue to grow, there will be very little construction and rents rise sometimes sharply. This will cause developers once again initiating the construction of new buildings until there is an equilibrium between supply and demand.

In phase three demand continues to grow and supply grows faster. Rental growth could slow down.

The final phase brings the market to a point of oversupply, due to over – building, with the condition aggravated by the economy weakening.

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We buy motivated seller homes and flip the homes to our real estate investor list.
We also have informative articles to all three websites and products to help wealth building ,tax etc.

Originally published here.

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Peter McArdle

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Dear friends,

Recently we had discovered another investment opportunity. We believe that this stock could possibly offer 70% potential upside. Name of the company is call Staples Inc.

This is a company that served customers of all sizes in 26 countries throughout North America, Europe, Australia, South America, and Asia. The Company operates three business segments: North American Delivery, North American Retail, and International Operations. They deliver office products and services directly to customers in Europe, Australia, South America and Asia.

Warren Buffett looks for companies with consistent earnings growth. This company has almost consistent revenue and earnings growth for more than 10 years. You can see that in the revenue and earnings charts below (pointed by the arrows).

Sir John Templeton said “The time of maximum pessimism is the best time to buy“. Long term support level formed at $14.00. Share price had dropped from $26 to $14 (down 46% from the peak), we believe that we are at or near to maximum pessimism.

 

Being confidence in our own analysis on the stock is not sufficient, we want to see insiders putting their money in their own company.

One of the director had bought 15,150 shares recently. There are many reasons for directors to sell shares. But there is one main reason why directors buy, that is they believe share price will rise.

At Tactical Trading Academy we teach our students how to identify winning stocks.

Our course fee is only USD300. To sign up please transfer USD300 to paypal account: metal.commodity@tradingeducationprogram.org.

Upon signing up for our Learn Stock Investing program, you will receive:
1. One to one coaching via skype.
2. Our stock picks via email for 12 months.
3. Market update via email for 12 months.
4. Our formula spreadsheet to calculate intrinsic value of a stock.

During the one to one coaching, you will learn:
a. How to identify a winning stock by looking at the fundamental (Profit and loss statement, Cash flow statement).
b. List of websites will be given for free information on stocks.
c. Learning how to identify a winning stock is not sufficient. You will learn how to calculate the intrinsic value of a stock. We do not want to overpay for a stock. Normally we will only buy when the stock is undervalued by 50% or more.
d. After you have identify a winning stock trading at undervalued price, you will learn how to identify a good entry level to buy the stock. By combining fundamental and technical analysis, we can achieve a high rate of success in our stock pick.

Market Strategist
Tactical Trading Academy
Website: http://TradingEducationProgram.org/
Email: metal.commodity@tradingeducationprogram.org

“The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.” — Warren Buffett

Originally published here.

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