Jeff Macke of Breakout published an article recently, titled, "Why 'cheap' stocks are for suckers." Macke's article brings up a couple of good points:
- "Dollar value per share doesn't tell the whole story;" and
- Reverse splits can "mask... ineptitude."
Macke notes that market capitalization--the cost per share multiplied by the number of shares--is more telling than share price. This is absolutely true. A $3/share company with 100 million shares outstanding has a market cap of $300 million. On the other hand, a $30/share company with 10 million shares outstanding has the same market cap. The $3/share company is cheaper per share, but is actually valued the same. That's why considering share structure is absolutely crucial!
We also agree with Macke's statement on reverse splits, as we have talked about in the past. For more on this, see our previous blog post.
Despite his good points, Macke states that any stock falling below "below [the smallest children's] hat size (6) range is probably unworthy of your portfolio." However, recommending companies half that size or smaller ($3 per share and less) is how The Bowser Report operates. While certainly not all companies below $3 are worthwhile, Macke's article fails to see the value in minipriced companies.
As we have continued to demonstrate based on our picks' performances, there are companies that are less than $3/share with good financials, and unique businesses that are simply unknown to the market. Large institutions and most retail investors don't want to touch these securities. Brokerages don't want to deal them. Financial news outlets give them a bad name. Yet, our subscribers continue to profit on them.
How? It starts with our selection process. We begin by rating each company we discover. To learn more about our Rating System, see our post on the topic. Only those that receive at least a rating of 8 of the possible 13 are considered further. In order for us to recommend a company, it must also be profitable. And, that's just the beginning! We scrutinize each and every company further, until the top company is the only one left.
Further, we preach our Bowser Game Plan, which helps investors limit losses and maximize gains. For more details on the Game Plan, see our post on it. Each rule of the Game Plan is there to help guide the small stock investor, taking the emotions and greed out of investing.
All small stocks are not great investments, but because you invest in small stocks does not make you a "sucker." Our subscribers certainly would not think so. While the general investing public continues to view our coveted "cheap" stocks as the outcasts of the market, we'll continue to help our subscribers find winners in the minipriced arena.
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