We’ve talked a lot recently about what the market is doing, and how bleak the whole investment world is. Today, we’re going to step back and let you in on what truly matters…profiting from penny stocks.

You see, even in the worst of times, there are winners and losers. We know the losers of the day — Lehman Brothers, Bear Stearns, and AIG. But, let’s take a look at how others are faring for a change.

There are always opportunities to find the next big winner when you least expect it. Take Emergent BioSolutions Inc (EBS: NYSE) for instance. The company IPOed at the end of 2006 at $11. Shares fell over the next 14 months to a low of $4.64 in the first week of trading this year.

Since then, shares are up a miraculous 242%! That’s 242% this year — the year being compared to 1932, the height of the Great Depression, on every financial network in the world.

You can also look at Genelabs Technologies (GNLB: NASDAQ). GlascoSmithKline bought it out for about five times its previous share price. In one day, share jumped from 23 cents to $1.22. That was just last month.

So, there are profits to be had in this market, just like any other. The problem is knowing where to look. Today, we have one place to find some guidance…

Over the past few years, one theme continuously pops up here at Penny Sleuth — insider buying.

It just makes since. If the people running a company think it’s cheap, chances are it is. After all, they know their own companies a lot better than any individual investor ever could. Not even a Warren Buffett can give you as much information about a company than the people running it.

Recently, one particular sector is seeing a spike in insider ownership…commodity-based companies.

In our premium letter, Penny Stock Fortunes, we track the fastest growing penny stocks across a whole spectrum of industries. Over the past three weeks, we’ve seen a remarkable amount of insider buying in our commodity plays.

We currently have a silver miner, a molybdenum miner, and an oil producer. All three are tiny, ready-to-pop companies. Businesses this small don’t usually have much going on as far as insider trading goes. November 2008 doesn’t seem to fit the mold.

So far this month, these three tiny companies saw a combined $1.4 million worth of insider buying — most of which came from the company’s CEOs and presidents.

We can only conclude that the executives and directors of these companies view them as cheap. Those are the people that know these companies better than anyone else.

Maybe even better than knowing that insiders are betting prices will go up, is the fact that they are investing with you — your money right along theirs. It’s a pretty sweet deal.

Instead of blinding throwing your money at some giant like Exxon Mobil, you can take solace in knowing that your money is just as valuable to the company as the CEO’s, which you can sure as heck bet will be taking good care of shareholder interests.

Of course, insider buying isn’t a 100% foolproof way to strike it rich. But, it does prove that you are on the right track.

Until next time…

Sincerely,
Jim Nelson
November 24, 2008

Jim Nelson

Jim Nelson is the managing editor of Penny Sleuth. He has been playing the stock market since he was 14, always with a preference toward smaller companies. He has honed his stock picking skills at Agora Financial since 2004, effectively combining a growth and value approach. Like Greg Guenthner, Jim also contributes to Penny Stock Fortunes on top of bringing you the Penny Sleuth every weekday.

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