Finding niche penny stocks riding large trends...and succeeding
Investing in trends can be fun! However, it can also be expensive. When attempting to invest in a trend, peeling back the layers can reveal successful, soaring penny stocks. It is easy to be blinded by the bigger companies, but there are always little guys standing to benefit.
Investor sentiment plays a huge role in penny stock trading. One of the best ways to build sentiment is to tap into a macro trend that a large company leads. Then, with some decent financials and a little bit of timing, investors will pick up on a small company, demanding its shares. This causes the stock to appreciate enormously.
To better illustrate, we'll go back in Bowser Report history to the end of 2008. Apple Inc.'s (AAPL) iPhone was beginning to take off because of its 3G release in early July. As Apple refined the iPhone over the years, its sales increased, becoming a multi billion dollar product. On the day of the iPhone 3G's release, however, AAPL shares were $172.58/share--an unrealistic price for most small investors. Still, the trend was there. So, how could individual investors take part on a budget?
With all of the iPhone sales, there was an increased demand for protective cases. After all, who would want to drop a $200+ device and have to replace it? We here at The Bowser Report stumbled across ZAGG Inc. (ZAGG) a much smaller company that built protective cases for the iPhone. Its financials were good, and it was riding what would become a major, culture defining trend. We recommended ZAGG in December of 2008 at $0.93/share--$171.65 less per share than AAPL (much more affordable). As iPhone sales soared, so to did protective case sales, benefiting ZAGG's top and bottom lines. What followed was tremendous stock appreciation.
From December 1, 2008 to July 20, 2011, AAPL shares rose 335.1%. ZAGG shares, on the other hand, soared 1,746.0%. Why? Because of the leverage of penny stocks (click HERE to read more about penny stock leverage). From 12/01/08 to 07/20/11, a $1,000 investment in AAPL would have risen to a respectable $3,351, but with ZAGG that same $1,000 would have climbed to $17,460. See a chart for each company over the allotted time period here: AAPL | ZAGG
ZAGG was a great example of one of many niche penny stocks operating within an erupting trend. The financials were there and it was in the right place at the right time to catch AAPL's booming wave. Not all niche penny stocks will appreciate quite so much, but because of their leverage, they have the opportunity to rise much more than the larger companies--even within the same trend.
Finding niche penny stocks within large, growing trends is a challenge, but the payout is certainly a great reward when individual company performance meets a soaring macro trend.
The Bowser Report is a monthly financial newsletter that specializes in small stocks trading for $3/share or less. Our goal is to provide the individual investor with relevant information on microcap stocks. Each month, we recommend a new company, provide information on past recommendations and report news surrounding the microcap marketplace.
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Information in this blog post contains references to past Bowser recommendations. This blog post contains no recommendations, and instead relies on data gathered on past recommendations from sources thought to be reliable.
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