Tiny companies are a great way to make a fortune off of the stock market. Synutra International, Inc. (SYUT: NASDAQ) is a great example of this. This dairy-based, nutritional products company has jumped from a little Bulletin Board operation to a billion dollar corporation. The company finally graduated from over-the-counter status to the NASDAQ Stock Market, bringing with it 113% gains in less than two months.

This happens all the time and is how some of the best investors in the world became the richest investors in the world. Buying some shares for pennies on the dollar and selling at $10 or $20 is possibly the fastest way from being a hobby investor to a super investor.

This is all well and good, but do you really think that you have access to these lucrative companies? Not really. The problem is most of them aren’t even traded on a major exchange.

The average penny stock (literally) is found on one of two places: Pink Sheets, LLC or the Over-the-Counter Bulletin Board (OTCBB). Until recently, it has been nearly impossible to get good information about companies like these. Until a few months ago, the pink sheet stocks offered virtually unaccountable information. No required filings, inaccuracies rarely corrected, and even shell companies… Until now.

The pinks have released a new classification system that helps investors sort out the companies with little or no information, leaving you with only credible companies with enough info to make smart investment decisions. (As a side note, my fellow Penny Sleuth editor Greg Guenthner has been working on this relentlessly in his newsletter, Penny Stock Fortunes. At least once a month, he offers some incite into this cloudy subject.)

The top level of classification is called PremierOX. This level ensures investors that the companies listed here sell for at least $1 per share and have at least 100 shareholders with a minimum of 100 shares each, as well as meet the requirements of all the major exchanges.

The second tier is called PrimeOX. This level requires virtually the same, except there is no minimum share price and only 50 shareholders with a minimum of 100 shares to gain entry.

The third is for international companies. This level, International OTCQX, is currently being broken into two separate categories: International Premier OTCQX and International Prime OTCQX. The requirements here are basically to meet those of the company’s national exchange (for example, a U.K. company would have to meet the London Exchange’s requirements). The second prerequisite is to have their filings available in English.

This new classification system makes all of us at Penny Sleuth ecstatic because it gives more incite into the relatively unexploited area of true “penny stocks.” This is a subject that hopefully interests you as investors. It is certainly one that we will talk about more in the future. Until then…

Sincerely,
Jim Nelson
July 9, 2007

P.S.: Unfortunately, many of these companies on the Bulletin Boards are just too small to write about here. This is why we have developed a new service to tell a select few about the companies that have the potential to be the next shooting star.

Jim Nelson

Jim Nelson began his investing career during the tech boom at age 14 – with purchases of Starbucks and AOL. Early inspiration came from an old Tweedy Brown whitepaper: “What Works in the Market.” He graduated with a degree in Political Science from Pittsburgh University, Nelson focuses on income investing, including dividends, covered calls, and fixed-income. Additionally, he covers MLPs, ADRs, utilities, consumer staples and tobacco. Nelson is the managing editor of Lifetime Income Report.

View articles by Jim Nelson