Yesterday's Most-Purchased Penny Stocks - MGLG, ARSC

Technically, Magellan Energy Ltd. (MGLG.PK) and American Security Resources Corp. (ARSC.PK) weren't the only two-most purchased penny stocks from Tuesday. They were the only two new ones though. All the other popular penny stocks from Tuesday had already been covered here, here, or here. In the interest of brevity, I'll just focus on why the two newcomers made the list, and what you need to do about it....if anything.

Magellan Energy Ltd. (MGLG.PK)

Tuesday's strength from this oil and gas stock was the response to a 'letter to shareholders' from CEO Apolinar V. Carcasona. Needless to say, it painted the company with a pretty positive brush.

The company's business is to re-open low volume/dry wells and shallow gas fields, and then squeeze the remaining gas or oil out of them.... gas or oil the well's prior owners didn't want to fool with. Sometimes it's a little, and sometimes it's a lot.

In any case, the letter essentially explains why there was little to no revenue in the recent past, while also confirming the end of the 'BTU/shut-in situation' now meant investors could look for production - and revenues - again.

Our take? It's easy to be bullish in a fairly ambiguous letter. Nothing speaks as loud as unaudited results though.

Therein lies the (a) rub. As a non-reporting pink sheet company, we have no assurance that any of the recent announcements of re-opened wells are legitimate, nor will we know for sure what kinds of revenues - if they're real - the company's actually producing.

We're not accusing...we're just saying all the recent success is conveniently unverifiable so far.

As for the stock, lots of volatility, but little follow through. Magellan shares were up yesterday (with many more buyers than sellers), but overall volume was weak - weaker than Monday's selling volume seen after hitting what appears to be resistance between $0.0024 and $0.0027.

It's worth watching if you're looking to trade that volatility, but know that potential downside trades are just as valid as upside trades. We don't see this as a long-term penny stock investment idea.

American Security Resources Corp. (ARSC.PK)

Though the company's moniker may lead you to think 'safety and security', this is actually a clean energy and fuel cell play.

The penny stock went nuts yesterday (from $0.0004 to $0.0018 - a 350% pop) after announcing the financing for a fuel cell manufacturing facility had been won.

There weren't a lot of details other than that. We do know, however, it was Highland Project Capital that provided the funding as part of an effort to help Hydra (a Highland property, we presume) with its $21 million backlog for its fuel cell orders. It's not clear what the partnership would mean - in terms of production - for ARSC though.

American Security is a pink sheet stock, but it's also worth mentioning they're a fully-reporting pink sheet company.... the effective equivalent to a bulletin board stock in most senses. So, you can add a layer of credibility. On the other hand, the only thing they've been reporting is expenses and losses - no revenue yet.

So was the run up deserved, and is there more of the same on the way?

It was probably a deserved reward for the news. Though we still have no idea how much of that $21 million backlog will actually make its way into American Security Resources' hands, even after the surge to $0.0018, the company's market cap is only about half a million bucks. A little revenue would technically go a long way on a per-share basis.

But, whether or not there's more gains on the way mostly depends on how profitable that revenue is. Will the cost of financing chew up any chances ARSC had of actually approaching profitability?

I don't know if it will or not - I'm just asking.

Given the likely pending price/sales ratio, and despite knowing this penny stock is going to remain incredibly volatile, this one may be worth a tiptoe following a little more DD. (Translation: I'm not adding it to my watchlist, but you're not crazy if you do.)

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