The year 2008 certainly won't be regarded as a winner for the stock market. There is an upside though - big pullbacks can leave behind big values that will inspire the market's recovery. That's great news for penny stock and small cap stock investors, since those stocks generally lead such recoveries. The question is, did stocks actually hit a bottom in 2008?
Yes, we believe the market has hit its cyclical bottom. That's not to say all the economic wounds are healed. However, enough stocks are approaching single-digit P/E ratios that investors recognize the current upside is greater than the downside. The opportunity may be even better for penny stock traders.
But what about problems like high unemployment, lingering corporate losses, and a shrinking GDP? Those are fair arguments, but those are issues that the economy and the market have overcome several times in modern history. Though the media would have you think the status quo is permanent, it's not. Everything is cyclical.
Even with faith in the cycle though, many nervous investors may still want to wait for the economy to find a better footing. While that's understandable, it's a mentality that may not be aggressive enough ... especially for penny stock traders.
On average, owning stocks from the exact market bottom to a point twelve months later translates into a gain of more than 32%. Waiting a mere three months to step into the same bull market whittles an investors' gain down to less than 15%.
And based on recent history, smaller is better during the very first part of any market rebound. Following 1990's recession, the Russell 2000 Small Cap Index returned 43.7% in the next calendar year, which easily topped the S&P 500's return of 26.3%. In 2003, following the 2002 lull, the Russell 2000 gained 45.4%, versus the S&P 500's gain of 26.4%.
The point is, small cap stocks (many of which are penny stocks by the end of a bear market) are also an investor's best bets during the early stages of the next bull market.
As 2008 transitioned into 2009, the government's stimulus plan solidified and the stock market began to show signs of new life. And, several penny stocks started to behave accordingly ... by rallying.
Take BioTime Inc. (OTC:BTIM) for instance. Despite no net profits, this biotech stock managed to gain more than 300% in calendar 2008. The basis for all the buying is the promise of profits in the distant future, though the foundation is being laid now. In other words, it's perceived as undervalued relative to the opportunity.
Basic Earth Science Systems Inc. (OTC:BSIC) is another bulletin board company that may have been unduly beaten up in 2008. Shares fell from a high of $3.04 in mid-2008 to a low of 51 cents by November. The company has remained very profitable though, which may be the reason for the stock's rebound to as much as $1.00 in January ... almost a 100% gain.
CVR Energy Inc. (NYSE:CVI), despite being listed on a major exchange, is still one of those small cap stocks that may have actually benefited from its size during the contraction. This oil refiner swung to a profit during 2008, and has continued to widen its margins. Shares gained 136% between late October and late January.
The message is simple - the stock market's implosion has highlighted the best of the best stocks. A lot of them appear to be small and micro cap penny stocks, including a big batch of bulletin board equities. And as you can now see, picking the right penny stocks at the right time can translate into superior returns. An investor's job is simply to go out there and find them.
Yes, we believe the market has hit its cyclical bottom. That's not to say all the economic wounds are healed. However, enough stocks are approaching single-digit P/E ratios that investors recognize the current upside is greater than the downside. The opportunity may be even better for penny stock traders.
But what about problems like high unemployment, lingering corporate losses, and a shrinking GDP? Those are fair arguments, but those are issues that the economy and the market have overcome several times in modern history. Though the media would have you think the status quo is permanent, it's not. Everything is cyclical.
Even with faith in the cycle though, many nervous investors may still want to wait for the economy to find a better footing. While that's understandable, it's a mentality that may not be aggressive enough ... especially for penny stock traders.
On average, owning stocks from the exact market bottom to a point twelve months later translates into a gain of more than 32%. Waiting a mere three months to step into the same bull market whittles an investors' gain down to less than 15%.
And based on recent history, smaller is better during the very first part of any market rebound. Following 1990's recession, the Russell 2000 Small Cap Index returned 43.7% in the next calendar year, which easily topped the S&P 500's return of 26.3%. In 2003, following the 2002 lull, the Russell 2000 gained 45.4%, versus the S&P 500's gain of 26.4%.
The point is, small cap stocks (many of which are penny stocks by the end of a bear market) are also an investor's best bets during the early stages of the next bull market.
As 2008 transitioned into 2009, the government's stimulus plan solidified and the stock market began to show signs of new life. And, several penny stocks started to behave accordingly ... by rallying.
Take BioTime Inc. (OTC:BTIM) for instance. Despite no net profits, this biotech stock managed to gain more than 300% in calendar 2008. The basis for all the buying is the promise of profits in the distant future, though the foundation is being laid now. In other words, it's perceived as undervalued relative to the opportunity.
Basic Earth Science Systems Inc. (OTC:BSIC) is another bulletin board company that may have been unduly beaten up in 2008. Shares fell from a high of $3.04 in mid-2008 to a low of 51 cents by November. The company has remained very profitable though, which may be the reason for the stock's rebound to as much as $1.00 in January ... almost a 100% gain.
CVR Energy Inc. (NYSE:CVI), despite being listed on a major exchange, is still one of those small cap stocks that may have actually benefited from its size during the contraction. This oil refiner swung to a profit during 2008, and has continued to widen its margins. Shares gained 136% between late October and late January.
The message is simple - the stock market's implosion has highlighted the best of the best stocks. A lot of them appear to be small and micro cap penny stocks, including a big batch of bulletin board equities. And as you can now see, picking the right penny stocks at the right time can translate into superior returns. An investor's job is simply to go out there and find them.
About the Author:
John Monroe has devoted over 20 years to understanding and effectively analyzing small cap stocks poised to create above average returns. If you would like to receive timely penny stocks trading ideas like the ones described above, the Small Cap Network Newsletter is published two to three times per week helping thousands of penny stock and small cap stock traders find companies with enormous potential.
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