We’ve mentioned this before, but we can’t say it enough… if you’ve got a question or suggestion for this site, please send it in. We read them all, and respond to every legitimate one. We got this one recently specifically about penny stocks, and why we don’t look at more of them.

The reader writes…

Dear Editor, Just a quick question about the Penny Stock Analysis section on your site. I wondered why most of the stocks are above one dollar rather than penny and/or sub-penny levels as the section implies? I am always looks for start up companies with good products or services that I can invest in with the potential make a nice profit. It would be nice to get your take on up-coming companies who have a chance to go big rather than stable companies who are already turning a profit as in your Small Cap Stock Analysis, which already does this. Just a thought and thanks for your valuable info!

Thanks for the note and great question.

The short answer is, given the choice of making some high-odds money versus swinging for the fences on a few penny stocks that will probably not pay off, we’ll take the former. And, those have been our only two viable choices of late.

The long answer is a little more complex, but still worth discussing.

We’ve had this discussion internally recently….. the choice between focusing on stocks priced under $1.00 (or comparable small caps) versus the choice of trying to just buy low and sell high no matter what the share price. IN THE CURRENT ENVIRONMENT, we’ve been more of the mindset that making some money is more important than scouring through an ocean of true penny stocks just to find a very rare gem. (Not that they’re all ever collectively healthy, but in a normal environment, at least some penny stocks have a shot at producing returns)

Oh, don’t hear us wrong… most penny stocks are crap most of the time. Right now though, almost all of them are crap all the time. Since we face the exact same headaches you do (like manipulation, bad information, inconsistent volume, etc.) when it comes to finding good sub-$1.00 stocks, we’re not going to try and squeeze blood out of  a turnip.

Or, think of it like this….. we’d rather have a 70% shot at a 50% gain instead of a 15% shot at a 300% gain.

We’ll probably stick with the favorable risk/reward scenarios of higher-priced stocks for a while longer, but as the economy continues to strengthen, we expect to find more and more penny stocks worth a look.

Something else to bring up (though the reader didn’t specifically mention it)…. it should be something of a given that we’re not likely to issue a short-term, ’swing’, or day trade alert for any penny stock. We just have too big of a list to mail to, and we have to take a little too long to craft a message to do so.

We frequently talk about penny stock trade ’set ups’ in the community articles though, so you can find those kinds of ideas there. As for what we’ll be focusing on on the newsletter, it will probably be more of the longer-term (days, if not weeks) penny stock trade picks.

Bottom line? Be patient - they’re coming.

If you’re not signed up for the free Small Cap Network newsletter, then you’re not going to hear about any of the penny stock picks discussed above. Sign up today.

I stumbled across an interesting tool The Economist rigged up that shows - nation by nation - who proudly own the most debt. As it stands right now, the world owes a total of $35 trillion. Who owes the most and the least? Check out the map to see.

http://buttonwood.economist.com/content/gdc

I don’t know of any particular use this will have to us as investors, since the world is so co-dependent, one country’s massive debt will affect all markets. Still, it’s worth knowing who’s not getting crushed by a mountain of bills.

Have fun.

It’s hard to believe that CEL-SCI (CVM), which was only trading at $0.27 when we suggested it in January, has rallied more than 600%, and is currently priced around $1.85. THAT is the reason we focus on small and micro cap stocks… big winners are uncommon, but when you do latch onto one, wow!

That being said, I have two business items to take care of before we go any further.

1. Just for the sake of smart trading, I think it’s time to at least take partial profits on CEL-SCI, even if temporarily.
2. Just for the sake of disclosure, I want to make sure there’s no misunderstanding that this site has an indirect compensatory relationship with CEL-SCI.

First things first.

Not only have CVM shares rocketed past resistance around $0.80 recently, today’s peak of $2.10 also matches multi-year highs for the stock… not that it wasn’t deserved. The company’s swine flu technology (LEAPS) may indeed be a game-changer not just for the fight against H1N1, but also a game-changer for the company’s stature in the biotech community. (The U.S. government is interested, for cryin’ out loud.)

Still, a triple-digit rally is a tough thing to hold onto no matter what the cause. So, between the potential brush with long-term resistance and just the sheer size of the recent pop, it may be a smart move to take some profits on CEL-SCI here. (continued below)

Just to be clear, I’m a long-term bull on CEL-SCI. I would be even if we hadn’t picked it in January. I’m also interested in preserving gains though, and my defensive senses are just telling me to shrug of the swine flu euphoria and be smart.

If it’s the wrong move, you can always buy it back later. In fact, the company’s Multikine cancer treatment alone (I think) makes the per-share price worth more than $2.00. That’s a long-term proposition though.

That being said - and not that it matters at this point - you should know that in January, this site received shares from CEL-SCI to present the opportunity to our readers. Since then the entire format for this site has changed; we’re now ad-supported and sponsor-supported, and those shares were transferred to a sister site. So, we still have a vested indirect interest in CVM shares… albeit very indirect

So what? Well, there’s really no ’so what’ to it. We’re clearly not pumping the stock - we’re telling you to lock in profits while you can before a pullback. We’re not even ‘covering’ the stock anymore. We’re just answering any potential questions that may pop up from this follow up discussion. (Normally we’d just drop the coverage and topic altogether, but this is important enough to discuss.)

In any case, that’s what we see right now - simply a chance to lock in a near-term gain, if not for your whole trade, then at least part of it. Just something to think about.

By the way, if you missed out on the bulk of the CEL-SCI (CVM) gain because you didn’t get our initial recommendation, don’t miss out again - subscribe to our newsletter today.

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For those of you who are new to our stock-picking newsletter and trade recommendations, the reader’s question below about our Flotek Industries Inc. (FTK) and Quiksilver Inc. (ZQK) picks give us a reason to explain how this site works, and what our M.O. is. Let’s start with the question first thoough. The reader writes…

Thanks for the sensible insight in small stock opportunities. I did have two questions I wondered about:

1. Following your entry point recommendation, Quicksilver moved higher for a while. Then it retreated back to the entry point, and now seems to be back on an uptrend. During that pullback, earlier this month, would that still have been a good time to open up a position if I had missed the original recommendation or would the upward momentum opportunity have already passed?

2. I read that Flotek has multiple class action lawsuits in the works and I wondered how much this plays into your recommendation…aren’t these potential concerns and wouldn’t this negatively impact the stock’s upward progress?

Thanks for the questions. In the same order:

1. It depends. Yes, in this case the temporary pullback would have been a great second chance to get into Quicksilver. That may not always be the case though.

With most of our recommendations we’ll describe key support and resistance levels. As long as those hold up, the trade will probably be ok to enter even if it’s well after our initial recommendation. Just bear in mind the stock entries tend to yield the biggest reward if they’re  taken at the onset. The ’second wave’ entries are your call - we just suggest buying them on the way up, or where they’re clearly finding support. In other words, ZQK was still a good buy because it was headed upward at the time.

2. Every lawsuit, whether it’s potential, frivilous, or real, can have an impact on a stock’s value. In 99% of cases though, that risk is already priced into the stock’s value. Flotek was no exception. So, what we’re looking for going forward from our FTK pick was more news that would spur a continued breakout regardless of any lawsuit. We haven’t seen it yet, but it’s only been a few days.

Hope that helped at least a little. Note that while we try and be as transparent and complete with our stock recommendations, often, time and space constraints don’t let us go into this kind of detail. If there’s something like this on your mind about any of our other picks though, you’re always free to ask.

If you’re not subscribed to the free e-newsletter, then you’re missing trading ideas and market commentary you can’t find anywhere else. Sign up today. 

As always, we invite questions and conversations about any particular stock you’ve been thinking about. That doesn’t mean we’ll always answer it (sometimes we can’t, and sometimes we just shouldn’t), but we will put it out there at least for others to sound off on. The latest entry into the mix is Raser Technologies (RZ); we got this question from a reader last week…

Is RZ a hot pic ? Some say yes. What contracts might they get , or does that matter ?

Is Raser a hot pick? Not right now. If anything, it’s cold. What contracts they might get matters, but what matters more is whether or not they get any.

As we (I) see it, Raser is close to being a one-trick pony. They’ve got a firm contract to build the bulk of a geothermal plant, and they’ve got the deal with Hummer to build electric auto motors. All well and good, but the failure to secure anything major other than those - paired with the failure to really turn either of these deals into a (net) cash machine yet - doesn’t exactly help the bullish case.

The fact is, the world’s not really falling in love with geothermal energy (not to mention it’s been determined to be a possible cause of earthquakes), and the world’s falling out of love with electric cars…. a field that’s seen a ridiculous amount of new competition flow in within the last three years.

So, no, Raser Technologies doen’t look all that great to me.

That’s just one man’s opinion though, and I’d be the first to say there are plenty of readers out there who have more perspective and knowledge than I do when it comes to RZ. So, I’m going to punt to them. If you’ve got something to say about Raser - good or bad - feel free to chime in below.

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Looks like I underestimated just how the market would respond to the EDAP TMS (EDAP) news of its HIFU business and expansion. The odd part is, the news actually came out yesterday morning, and the stock didn’t budge at all then. In any case, the bearish call/trade still stands, though the big pop this morning throws a wrench in where and how we draw our lines in the sand…. stops.

Truth be told, the move to the peak of $4.70 may actually have done us a favor - as long as it doesn’t persist. Odds are that most of you (judging from the point in time I hit ’send’) were starting to short EDAP between 9:40 and 9:50 am, at an average price of about $4.45. Since the delayed surge is also apt to be temporary, it’s actually helpful - we were able to get in at a higher price than we would have found yesterday.

The problem is, what about our stop level? I advocated using that key resistance line as a stop, and it was obliterated before the stock ever opened.

Well, I really don’t want to not use that line…. it’s an important line. The only adjustment I’m going to make is that the stop only applies if it looks like EDAP is going to close above it for any given day (which is something of a judgment call). After all, the close is the most important price of the day.

Bottom line? I’ve got a feeling the market’s not going to be as keen on EDAP later in the session when it comes time to take it home for the weekend. Stay tuned though.

If you missed the EDAP trade along with the Leap Wireless (LEAP) recommendation we’re talking about, it’s becuase you’re not signed up for our free newsletter. Subscribe today.

Veteran readers of the Small Cap Network website and newsletter will probably already have done so, but newcomers may need to hear it explicitly…. take profits on American Axle & Manufacturing Holdings Inc. (AXL) if you were in a trade because of our July 28th article “Five Great Stocks Under Five Dollars“. The stock has jumped more than 100% today thanks to an announcement that General Motors (GM) would rework an agreement with American Axle & Manufacturing that is almost the equivalent to winning the lottery.

At the time we suggested them, AXL shares were trading at $1.28 each. As of today, American Axle & Manufacturing Holdings is trading at $5.71 per share, translating into a gain of 346% for those who acted on the idea when it was published.

Here’s the core of the new deal….

• GM has pledged $110 million payment (to help recover AXL’s costs associated with the automaker’s bankruptcy process)
• GM will offer a loan facility of up to $100 million (through September 2013)
• American Axle will receive its second waiver extension
• GM will receive warrants for up to 20% of Axle’s common stock

In other words, American Axle & Manufacturing Holdings Inc. gets to live….. something the stock was hinting at well before today.

But isn’t all of this great news, and a reason to keep holding AXL shares? Yes and no. It’s great news, but a bird in the hand is worth two in the bush.

AXL may well keep on rising, but a 100% gain is a tough act to follow. The rally was based more on hype and euphoria than on numbers, and it could be a while before AXL shares are actually worth $5.71…. even if General Motors starts to crank out and sell cars like they did yesteryear (metaphorically speaking). If American Axle continues to rise, or dips sharply, you can always buy it back then. The sell recommendation is a simple matter of risk and reward; there’s not a lot of reward left to garner, but there is a lot of risk.

Or, here’s the ultimate hedge - sell half your AXL now, and keep half.

If you missed the American Axle & Manufacturing Holdings Inc. (AXL) trading idea, or any of our others, do something about it today - sign up for the free newsletter. We’ll send out similar trading ideas and market commentary 2 to 3 times per week. 

We opened a can of worms last week when we pointed out how the S&P 1500 Wireless Index was a bearish freight train despite the fact that some - not all, but some - of these stocks were undeservedly being dumped. Mobile Telesystems OJSC (MBT) didn’t help the cause any today. Russia’s largest wireless service provider saw it’s net income fall 14.6% last quarter, on a 23% decline in revenues.

There’s a slight upside…. the $2.02 billion in sales was better than analyst’s expectations of $1.98 billion. And, the $563 million in income was stronger than analyst expectations of $541 million. There’s a problem though - even that number may be a little misleading. Had it not been for a fortunate currency exchange fluctuation, Mobile Telesystems would have knocked another $198 million off the bottom line for the quarter. In other words, MTS would have earned $365 million instead…. well under the $659 million earned during the second quarter of last year.

A handful of things have become clear….

1. The problems being experienced by most wireless companies are universal/global
2. Though Mobile Telesystems is an exception to this trend, revenues are largely dropping because subscribers are being lost
3. Incomes are up for the wrong reasons…… mostly because of expense cuts, but in MTS’s case because of currency swings

We still contend there are some very solid companies being thrown out with the baby’s bathwater, but at the same time we can’t encourage anyone to step in front of a bus until these little shots of troubling news have eased up.

By the way, we also looked at another wireless company’s earnings this morning - Virgin Mobile USA (VM). It was the same higher income/lower sales act we’ve been hearing from most of these stocks.

If you’re not signed up for our free newsletter, you’re missing some great insights and trading ideas. Sign up today to get our exclusive commentary that’s designed not just to share information, but help make and save you money.

Though it’s technically off our watchlist, we’ve still been unofficially following the continued progress of penny stock Applied DNA (APDN). Today we’re able to offer an updated overview of the company, where it is, and where it’s going. (It’s a Crystal Research Report, which as many of you know means it’s a very thorough and very fair look.)

The link is below, but first we wanted to chime in briefly about APDN’s chart.

Applied DNA fostered a wave of major progress early in the year, fanning the buying flames and pushing the stock all the way up to a high of $0.21 by early June. The ebb and flow pattern stopped then; shares moved back to the 10 cent area and simply traveled sideways for a couple of weeks. Over the last five days though, APDN has started to move again.

In other words, this penny stock is back in play.

I don’t think the prior trend lines (marked on the chart) are going to be a factor going forward, as that pattern was broken in June. Rather, we’ll just have to monitor the news and watch the chart one day at a time to find the turning points. As they become relevant, I’ll try and post more trading thoughts on APDN here.

In the meantime, the link to the Crystal Research report on Applied DNA can be found at the company’s website. Just click here to access the PDF.

To receive updates on this and other penny stocks, as well as specific trading ideas, be sure to sign up for our free e-newsletter. It’s delivered 1 to 2 times per week.

What is it with Syndication Inc. (SYNJ.PK) and its press releases that use a lot of words but never really say anything? The latest one came yesterday. From what I could glean, the company has initiated what they’re calling Phase I of their Bio-diesel production partnership with Sentinel Renewable Energies S.C. Inc. What’s less clear is why the company chose to declarify the message with quotes from some of management’s key members.

What we didn’t get was an explanation of what ‘initiation of Phase I’ means. Does that mean production has started? Does it mean the hardware is now in place? Does it mean revenue is flowing? The news release didn’t say. What we did get, however, is a list of both companies’ officers and directors, and the geographic locations of any and all of Syndication’s partners (and some of their partner’s partners).

But wait - it gets even stranger….

McCutcheon Marshall Jr. (President of Syndication), when asked to comment on the merger, said:

“The only specific comment I have on the merger, is that I think it’s great…. However, as far as I understand, it was done some time ago. It’s the corporate policy style to let internal developments of the Company season a bit before releasing news…. Mr. Sorrentino wishes I not name at this time. As the legal department becomes comfortable it will allow me to release the details of these relationships, including the financing, but, not before,”

In all fairness, Marshall is a new addition, but did he actually say ‘as far as I understand’? I have no problem with a CEO not making legal assumptions (that’s what lawyers are for), but this guy seems to have no say at all, nor does he seem responsible in the least for getting Phase I going. Yet, his name is plastered all over the press release.

But wait - it gets even stranger….

Brian Sorrentino, the CEO of Syndication, stated….

“Mac (McCutcheon) has assembled a ‘World Class Team,’ why is anyone surprised?…. Mac moves fast. In just 4 short months he has launched the Bio-Diesel Phase of the program and has me working on Phase 2.”

First of all, did ‘Mac’ do anything or not? He says he really didn’t (though he doesn’t seem sure), and Brian says he did. Worse than that, why is the President instructing the CEO what to work on (Phase II)? It all has to be done eventually, and the two likely work as a team. It’s just an odd (disfunctional?) way of posing it.

More than anything else though, the news release left me wondering one important thing…. so what? As an investor, why should I care if Phase I has been initiated?

Clearly I’m being rhetorical, as Phase I’s beginning means progress towards revenue. Considering the company’s extreme fuzziness though, a little more clarity is still needed. They never even came close to answering the ’so what?’ question.

As for SYNJ shares, the market loved the news despite the lack of meaning, sending the stock higher by 60%. However, Syndication shares have had a serious problem hanging onto its gains lately. Unless the market can attach some real dollar amounts (even ballpark guesses) to the news, this stock is one I advocate selling - taking profits - when it surges, and then buying on the dips.

If you’d like to hear more thoughts on Syndication Inc. (SYNJ) - including if we decide to recommend a trade on the stock - be sure to register for our free newsletter.  

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Investment opportunities can pop up in unexpected places, but none may be more offbeat than from the small cap stocks in the footwear industry…. such as Deckers Outdoor Corp. (DECK), Iconix Brand Group Inc. (ICON), and Wolverine World Wide Inc. (WWW). Each of those shoe companies - and many of their peers - have fared the recession surprisingly well, leaving many investors wondering why the S&P 600 (small cap) Footwear Index is still down 66% from its October 2007 peak. Here’s a closer look at footwear’s recent past and likely future.

Footwear the First to Fall

Though the recession (thank sto the privilege of back-dating) officially began in December of 2007, it’s not like the market started to fall apart at the same time. Indeed, many industry groups were still hitting new highs in mid-2008. Footwear was not one of them though.

The S&P 1500 footwear index (all caps) began tumbling in early November of 2007, and hasn’t looked back since. All told, the index lost 55% of its value from its peak through its March 2009 trough. The small cap version of the index lost a whopping 82% during the same period. That big dip, however, is part of the opportunity … low stock prices are more affordable than high ones.

‘Undervalued Shoe Stock’ is a Matter of Opinion

Of course, the difference between a ‘cheap’ shoe stock and an ‘undervalued’ one is the company’s future. The more compelling the future, the more attractive the stock is. Fortunately for value seekers, Deckers, Iconix, and Wolverine do indeed have a compelling future… an outlook made very plausible based on the fact that many of these companies remained pretty profitable during a period when profits were rare at best.

Take Iconix for instance…. net margins of more than 30%? Deckers was no slouch over the last twelve months either, clearing more than 10% of its revenue as income. With a forward-looking price multiple of 9.9, DECK is more than a slightly-interesting long-term idea.

The Cinderella story here, however, may be LaCrosse Footwear Inc. (BOOT). To say it’s off the radar would be an understatement, but the company has managed to do something other similarly-sized shoe companies can’t - turn a profit.

Though clearly not every single small cap name in the footwear group is a winner, as a whole, the industry has quietly been holding its own, waiting for an economic rebound. On that note….

Looking Forward - Footwear to Lead the Recovery?

Economic predictions are rarely even worth the paper they’re printed on. And, the estimated earnings for these shoe companies are indeed rooted on the assumption of an economic recovery. So, what if the recovery doesn’t actually happen?

It’s a legitimate concern, but a revisit to 2007 is in order.

In late 2007, when very few prognosticators and even fewer investors actually believed we were headed into the worst recession since World War II, the demise of shoe manufacturer stocks actually correctly predicted what was to come. In that light, the near-100% gain we’ve seen from the S&P 600 Footwear Index since March’s low may be equally indicative of the economy’s improving health.

Strange? A little. Plausible? Sure. Shoe stocks are generally something of an enigma when it comes to long-term trends, so to use them as an economic barometer now isn’t any crazier than, say the Dow Theory (which compares transportation stocks to industrials stocks to determine the market’s true trend).

In the meantime, Iconix and Decker - and Wolverine to a lesser degree - appear to be leading a very stealthy footwear stock charge. Long-term investors who think boring and obscure stocks are beautiful should take note.