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All those silly little micro caps. Isn't it neat watching 45 cent
stocks go to 2, 3, even 5 bucks? Wouldn't it be neat to have a
million shares of an obscure penny stock, only to see it go to 5
dollars? Well these things aren't just wishes folks, they happen.
Let me tell you a story.
About a year and a half ago I got an email from a reader who is an
interesting guy, owns a few restaurants and likes to invest wisely.
He asked me: What do ya think about buying a couple million shares
of HealthSouth? HLSH? The outfit with all the legal troubles over
accounting? The outfit with all the scandals? Yeah, that's the one,
I'm thinking of buying a few million shares. Hmm. Why?
Well although the management is corrupt, and most of them belong in
jail, they sure own a fine number of hospitals and clinics. I gotta
figure that even if they have to resort to fire sale's the real
estate's worth about 8 dollars a share. Hmmm. I told him I'd look
into it and see how it all figures. I didn't. I forgot about HLSH.
Fast forward to last week. I got an Email from him and he sent me a
note to tell me he had sold one half of his holdings (one million
shares) between 4.90 and 5.10. But here's the kicker. He bought
those 2 million shares between 48 and 62 cents. So, he's up about 5
million dollars so far and still has a million shares, buying an
almost bankrupt, corrupt company. It makes you think.
Well, I'm usually not a gambler when it comes to things like that. I
might toss a few grand at something and see if it pans out, but my
conscience would never allow me to toss a million dollars at
anything! I'd worry myself to death on the first one cent downtick!
But here's my point in all this. Each year we often see the same
sort of pattern emerge. The most beaten down, thrown in the heap,
left for dead stocks often wake up in the 4th quarter and into the
proverbial "January effect". In November and December it's fundies
stuffing cash in anything they can get moving, so they can take a
ride and make some fast beta, while in January, they often flock
into the deadbeat stocks in hopes they'll resurrect themselves that
year.
We have been witness to a lot of that action so far during the
latest run up. Two dollar stocks are now 5 dollars. 25 cent stocks
are 2 dollars. For the brave of heart, not against taking a pretty
big risk, there are indeed opportunities in buying off the wall,
broken stocks. But which ones? Well if you are really risk averse,
you look at "big companies that got slaughtered" LU comes to mind.
In August it was 2.80, SunWest was 3.20, and GLW was 9.50. See where
they are now.
Then again there are the "little guys" that almost went belly up.
RSTN was 22 dollars in 01. Now see where it is at. Could it ride the
January effect too? Could. CNTX was once a 30 dollar stock, where is
it now? TERN was 140.00 in 99, now what can you pick it up for? ULTE
was 45 bucks in 01. Now it's what's cost? CNLG was 235.00 in 00.
Anywhere near there now? SFE was 100 dollars in 00, now what do you
think it is going for?
Any one of them could go belly up just as well as move up for 10
bucks. Each one has it's own distinct story. But, we'd be willing to
bet that if you only bought 100 shares of each one, and held it for
half a year, you'd come out smelling good. Maybe not as good as our
reader, but you'd sleep better than he did. Obviously it would have
been nicer to have gotten into the left for dead craze a few weeks
ago, but I think there is still time. They all might pull down now
and then, but unless this year end rally gets derailed, they could
still work.
http://clix.to/wallmann
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