Our Three-Point Checklist for Finding a Hot Small Cap
Our Connections paid off.
We sent Manward Trader subscribers all the must-know details of a hot $5 stock yesterday.
It was the result of a long day of meetings with several CEOs and top business leaders. We’ve got meetings scheduled with several more today.
But this CEO in particular had something we were looking for in a small cap leader.
Of course, the numbers he showed us were good. And his business’ prospects are strong.
But that sort of analysis is easy. The pencil-sharpening dweebs we spent our MBA days with are quite good at shaking the good from the bad.
No, we were looking for something else.
It has everything to do with this chart.
If you know how to read it, the image painted by those five simple bars is scary.
It’s a visual confirmation of what we all know is a nasty trend. It shows that stock prices these days are less about what we can feel and more about what feels good.
In other words, we’ve gone from a world where we could count widgets and put a firm price on them to a world where we’re trying to put a price tag on ideas and, dare we say it, whims.
That’s Not a Business
We heard it a lot yesterday.
We stifled a yawn as we listened to the CFO of a paper shuffling company. He borrows at one price and lends at another. On paper, it sounds great. Lots of good companies are doing it quite well.
But the competition is fierce. Mess up your math or miss an estimate… and trouble will eat you up.
When your business is numbers and the numbers go away… you suddenly have no business.
Our CFO pal (we ended up eating lunch with him) claims his business is different because it manages the numbers differently. It’s an intangible value, he told us. We won’t find it on the balance sheet.
And he won’t find us on his list of shareholders anytime soon.
Instead, the company we found our heart thumping about actually does something.
No, it’s not riveting planes together or welding great steel girdles like the tangible greats of yesteryear. In fact, it doesn’t have big warehouses, huge factories or deep mines.
Its business is 100% online… and 100% tangible.
It’s doing an old-fashioned business… in a new, high-tech way.
We can see the numbers, count the clicks, value the data it collects and watch as it modernizes an old and inefficient business model.
It’s not shuffling money and adding risk in hope of reward. And it’s not “advising” an ever-changing list of clients. It’s building something.
Sadly, that’s rare these days.
And we’re sure the company will be rewarded for its efforts.
Small Cap Checklist
As we shook our head at what some of these well-dressed and slick-talking men were calling businesses, we compiled a list of what we’re looking for in our small cap investments.
First, we want a real business… that makes something.
Sure, there’s money to be made in moving money from one fist to the next. But we didn’t talk to a single CEO yesterday who didn’t refer to the destructive forces of 2008… the year the money trade blew up.
Each of them told us they learned their lesson and that the next time will be different.
History begs to differ.
Stick with companies with a balance sheet dominated by real assets… not unmeasurables, like strategy and goodwill.
Don’t make that chart above any worse.
Second, we want a CEO who’s in the trenches.
We talked with just two top execs yesterday who were either the founder of their companies or the son of the founder. The others were hired guns.
Guess which ran a better business?
In fact, the company we told Manward Trader subscribers about yesterday was recently started by a man who has a slew of very successful startups under his belt. He took what he learned there, made some smart acquisitions and now has a $5 stock that will soon be worth $10… and then $20.
And finally, when you’re investing in a small stock, it’s easy to justify putting your money in a company with a small market.
Don’t do it. It’s trouble.
Instead, focus on growth stocks that push a product that we all need or will use.
To understand why, just look at the companies atop the Wall Street leaderboard. They’re not in niche markets. They’re selling products that everybody uses.
We saw this idea firsthand as we chatted with the CEO of the company we recommended yesterday. He showed us how, with every company he’s started, he’s always focused on scalability. Get your product on the market, he says, and then get it to the masses.
If it’s not something everybody wants or needs… move on. There’s bigger money elsewhere.
Take this advice and get some small stocks in your portfolio today.
To make things simple, we just released a full presentation on our penny stock trading strategy. It includes the details of everything you need to know to get started. If you want to see how we measured the $5 stock mentioned above and how to invest in it today, click here.