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Varchild2008 (83.67)

Investing in Penny Stocks is Clearly Canadian

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August 27, 2008 – Comments (2)

I'm currently an investor in 2 penny stock companies.  Both companies have had their companies reduced to debt or non-profitability over the recent past.  Both companies, however, have THIS YEAR fit a theme that is KEY to being a successful penny stock investor.

I've been meaning to save this just in case Motley Fool picks me up as a part-time freelance writer for the website.  Since, I can't predict whether that will happen or not and today is an exciting day to talk about penny stock investing, I have to share my strategy to anyone interested.

So.. What do you look for to establish your first position in a Penny Stock as an "Investment" not a short term bounce, "trade."  I.E.  How do you take the Motley Fool buy and hold strategy with companies that have recently been on the verge of bankruptcy?

The simple answer is that you do not look at these companies under a different method than you look at any company.  Whether to invest in Wal-Mart is the same as whether to invest in an Penny Stock trading on the Bulletin Boards.

Here is my list of requirements before I get excited enough to buy into a penny stock for the long haul:

1)  Has the Management that reduced the company to near bankruptcy been replaced by better management?

If YES then you can move to #2.

2)  Is there an established line of services or products that this company still sells that you can easily become an excited believer in?

   ----> What to look for:  Look for any recent magazine articles praising the company for their services or products they sell.  I invested in Southwall Technologies because of the Award it received for its XIR Heat Windows.  I invested in Southwall Technologies because everyone is talking about energy efficiency (Democrat or Republican) in our own Government as well as in foreign governments.  

If you can not become a believer, fan, fanatic even over what the company sells then do not invest! Otherwise move to #3.

3)  Has the company established a turn-a-round strategy that has taken years to establish but is now in full swing and is this strategy now backed up with evidence that it is working well? (such as a recent earnings report)

------->  When did I invest in Penny Stock:  swtx.ob?        I invested after reading the company's 1st Quarter 2008 earnings report which was a key piece of evidence.  That penny stock abandoned their display products to focus on their energy efficient window products.  Their earnings report was an increase YoY of 21%.  I saw improvements all over the balance sheet. 

If you have a penny stock that has nailed down all 3 requirements then you can go to the final requirement:

4)  Is the company having success in expanding their services/products?

If YES then INVEST.

But I urge you to find those Penny Stocks that meet ALL 4 REQUIREMENTS.

Here's something to consider.  Should you wait until a company has positive cash flow?  Should you wait for ZERO DEBT?

That depends on the company.  With Clearly Canadian (CCBEF.OB), I looked at their balance sheet and their recent earnings report and I labored for MONTHS before investing.  The company carries a negative cash flow but they are coming out of it and I felt that it wasn't too early to invest in CCBEF, because waiting for a positive cash flow was too late.

I believed that investing in CCBEF.OB in spite of a negative cash flow was a smart decision based on the fact that the company fulfilled all 4 of my requirements and the negative cash flow was trending UP to positive.  It may be 6 months for the company to get a positive cash flow, but optimism and intelligent analysis have pretty much forced me to make a move.

I have 2 established positions in 2 penny stocks and I am riding them to victory.
SWTX.OB 1,000 shares.
CCBEF.OB  1,250 shares.

By all means... Take a look at these companies if you like to determine for yourself if they are good investments.  However, this post should not be seen as stocks that I think you should invest in.

When conducting research on any penny stock, I like to place them on a watch list to track the share price activity over a long period of time so I can buy low.

2 Comments – Post Your Own

#1) On August 27, 2008 at 10:09 AM, Varchild2008 (83.67) wrote:

Regarding Clearly Canadian reporting their Earnings after hours today... It would not be stupid, in fact it would be smart, for new investors interested in this company to listen in on the conference call (or read the transcript).

You can establish a position today if you want, but I don't want to see short-term investors jumping on this stock just because I have and bailing out immediately if the earnings report is bad.

I do not actually care about the earnings report... I am focused on the overall picture of the company and my own research on the growth potential.

Clearly Canadian coming out today and announcing a distribution deal with COTT CORP is what I am interested in.  I *Yawn* at tonight's earnings report.

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#2) On July 15, 2010 at 4:22 AM, pennyinvest (< 20) wrote:

Thanks for providing a great resource.This site is extremely informative and i will definitely refer it to my site visitors.

Penny Stocks 

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