Penny Stock Industry Report:
Hot Penny Stocks Earn 30% in Bull Market By Ed Zwirn
The stock market in the United States weighed in with a spectacular showing early this year, with the Dow Jones Industrial Average up nearly 10.8% as of the week which ended March 15, 2013. This benchmark index, which consists of 30 higher-priced stocks, started out the year with a bull session, gaining over 300 points in its first session on Jan. 2 as investors rushed in to buy stocks with the advent of the new year. And the broader market, including penny stocks, has participated in this gain. The 2,451 stocks in the NASDAQ Composite Index saw a rise of 7.22% in the first 10 weeks of 2013. To track the overall performance of penny stocks during this period, we took a sample of 578 NASDAQ-listed stocks priced under $5, constituting 23.6% of the index, that had traded both on Dec. 31, 2012 and March 18, 2013 and found that these stocks gained an overall 5.75% during the period. To put it another way, if you had bought one share of each of these 578 stocks at Dec. 31 closing prices and sold them at the March 18 close, you would have spent $1376.67 and wound up with $1455.78. This may not seem all that impressive, but bear in mind that this works out to an annualized rate of return of about 30%. Not bad for a portfolio for which you had to do no research.
Of these NASDAQ penny stocks, 358, or 61.9%, saw their share prices rise, seven (1.2%) were unchanged and the remaining 213 penny stocks lost money. There were some spectacular winners in this sample, with 161 stocks, or 27.8%, gaining more that 100% on an annualized basis during the period (meaning that you would have more than doubled your money if you achieved the same results over a full year). There were also some spectacular losers involved, with 50 (8.6%) losing over 100% on an annualized basis. There was also mediocrity: 30 of the penny stocks charted moved less than an annualized 5% in either direction.
NASDAQ Penny Stock Performance
Losers Unchanged
61.9%
NASDAQ Composite
Others Penny Stocks
23.6% 76.4%
Penny Stocks NASDAQ Composite Index performance
+7.22% +5.75% 0
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Winners
36.9%
1.2% There are a few caveats here: In an attempt to chart the progress of the often spotty market for penny stocks, we excluded all stocks that had no trades on either the starting or ending date of the period, meaning that this performance benchmark excludes all penny stocks that may have either gone belly up or made their debut in the interim. Also, the figures include only NASDAQ-listed penny stocks, so their results may differ greatly from shares in other trading venues. But we hope that these numbers can help serve you as a useful benchmark in gauging the effectiveness of your penny stock trading strategies. Of course, as all the standard disclaimers say, past performance is no indication of the future, but, as we will see, with effective screening, you can make much more money on penny stocks than you would have with this “monkey aiming at a dartboard� approach.
THE ECONOMY 3
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The period under review saw evidence of the U.S economy making overall, if uneven, progress. Of the headline figures, the overall economy, as measured by Gross Domestic Product, was announced on Feb. 28 to have risen 0.1% in Q4 2012, down
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www.PeterLeeds.com from a rise of 3.1% in Q3. This progress, such as it was, was accompanied by little or no inflation. In January, the Bureau of Labor Statistics announced that the Consumer Price Index had remained absolutely steady in December. In January, the CPI also remained flat, while in February, prices rose 0.7%.
at the same rate for an entire year, you would have doubled your money.
LEEDS ANALYSIS STOCKS* Losers
Unemployment rate announcements saw steady but anemic progress from the 7.8% November rate announced in December to the 7.7% February rate announced in March. This is of course insufficient progress to indicate a roaring economic recovery, but bear in mind that the unemployment rate peaked at 10% in October 2009 and has been falling ever since and the February 2013 rate is the best score seen since the 6.8% recorded for November 2009.
Winners
35.5% 64.5%
Real estate was also a strong component of the U.S. economic recovery. In January alone, housing prices rose at the fastest pace since the housing bubble burst in the summer of 2006, with the Standard & Poor’s/Case-Shiller 20-city price index having climbed 8.6% in the prior 12 months, up from a 6.8% 12-month rise the previous month. Prices for homes were found to have risen in all 20 cities. The policy of the U.S. Federal Reserve has also had a key impact on stocks so far this year. Despite rumors to the contrary, Ben Bernanke and company have made it consistently clear that, even as the federal government itself attempts to ratchet down spending, the central bank will continue to pump $85 billion a month into the economy via mortgage and Treasury bond purchases. In March announcements, the Fed, which had originally said it would start to dump these bonds at around this point in time, backtracked by saying it would probably keep buying them and hold them until they mature, meaning that this stimulus measure, which has been in effect since June 2011, will continue for the foreseeable future. When you consider that this program, which pumps $1.02 trillion a year into the economy, comes in addition to the stimulus provided by the Fed’s commitment to lower interest rates, you have an idea of why the market in fact shrugged off the so-called sequestration by which federal spending was reduced by $85 billion a year starting in March.
LEEDS ANALYSIS In an attempt to measure the gain seen by stocks on which some research has been done, we took a look at the 31 NASDAQ listed stocks recommended by Leeds Analysis from Feb. 3, 2011 to Dec 5, 2012. These stocks, which represent about 5.5% of our NASDAQ penny stock database, were found to outperform. If you had invested in each of these stocks over the 10-week period, you would have seen your average share price climb 8.12%, or 42.24% annualized. Of these 31 stocks, 20 gained in value, a success rate of 64.5%. Half of these winners reaped gains of more than 100% at an annualized rate of return, meaning that if you invested in of these shares and your results continued
Double your money in one year 50% Other winners 50% *Feb. 3, 2011 to Dec. 5,2012 Of course, these results are not meant as any measure of Leeds Analysis performance during the period. For one thing, they represent only a portion of the stocks recommended during the period, since many of our picks trade elsewhere than the NASDAQ. For another, they are not reflective of any changes in company fundamentals which have occurred. If you are a Leeds Analysis subscriber, you can find out more about these winning and losing penny stocks and track them in relation to our current recommendations, which very well may have changed since they made our list. But, as the numbers show, penny stocks tend to track the broader market, albeit with a lag, as investors’ perceptions of the wealth they hold change not only due to stock market fluctuations, but also real estate price value changes. The more spare pennies investors have (or at least feel they have) under their couch cushions, the better for all stocks, whether you are trading blue chips or penny stocks.
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