With that in mind, here’s a glimpse at the top-performing penny stocks for 2010 – and a look at how we can use their attributes to fuel more gains this year…

We live in a world where a bevy of financial information is available to us freely if we’d only look. With a couple of keystrokes, anyone with the internet can look up detailed stock information on Google Finance, a sophisticated technical candlestick chart on Stockcharts.com, or up to the minute financial news on Bloomberg. That sort of access has significantly squeezed the gap between individual investors and the big boys on Wall Street – but the information itself isn’t going to pave the way to gains… you have to use it too.

That said, let’s take a quick look at the 10 best-performing penny stocks for the year so far, and try to see a common denominator that’s tradable:

Top 10 Penny Stocks of 2010

Jazztel (OTC:JAZTF) – Shares of this Iberian data transmission company spiked sharply in early February on speculation over a potential takeover.

Remy International (OTC:RMYI) – Aftermarket auto parts manufacturer Remy International saw shares dive in late December, only to be followed by a colossal rally in January.

Geospatial Holdings (OTC:GSPH) – this tiny pipeline management company saw shares make a big move back in February when the company was featured in Time Magazine, and again earlier this month when it made an appearance in Wired.

Graham Packaging Company (NYSE:GRM) – This $665 million packaging company saw its stock price move after a significant earnings release.

Somaxon Pharmaceuticals (NASDAQ:SOMX) – While tiny drug developer Somaxon has paid stock promoters to pump its stock in the past, this year’s pop was more above board – it was predicated on some FDA news on its newest drug.

China Swine Genetics (OTC:CSWG) – This bizarre Chinese pig breeding stock got legs – and the attention of traders – when it was featured on a prominent penny stock promotion website.

Wave Systems Corp. (NASDAQ:WAVX) – Like China Swine, this tiny semiconductor play got additional trader attention when it was picked up by penny stock promoters.

Tuesday Morning Corporation (NASDAQ:TUES) – This name should sound familiar to Sleuth readers… I put this play on our Monday Watchlist following a technical breakout. I hope you took my advice — the company has rocketed 122% since then.

RESVERLOGIX Corp. (PINK SHEETS:RVXCF) – This extremely volatile pink sheets stock has become a favorite of traders after its cholesterol drug got courted by some big pharma companies.

Wabash National Corp. (NYSE:WNC) – Wabash National, a small-cap truck trailer manufacturer got additional coverage after it signed a significant deal.

Connecting the Dots

Although these ten companies seem pretty different, there are a couple of dots worth connecting. For starters, each of them moved quickly on a catalyst that was difficult to predict. Who would have known that a major drug would get approved or that a company would see amazing earnings growth? But even though 2010’s top gaining penny stocks didn’t give many hints to investors, three things could have increased your probability of catching one of them.

1. Don’t Shoot for the Top Gainers

While it sounds anti-intuitive, trying to search out one of the top gaining stocks is a great way to lose your shirt in the market. That’s because these plays are volatile and they move quickly – in both directions. Instead, focus on getting repeatable moderate gains on a consistent basis, as we try to do each week with the Monday Watchlist. Making 9% in a week on a diversified basket of penny stocks is much more desirable than making 500% per year on a single risky play… Focusing on high-probability trades increases the chances that you’ll run into a top gainer on your own (like we did with TUES).

2. Stick With a Strategy

Be it technical or fundamentals-based, you need to have a strategy before, during, and after you make a trade. After all, it’s futile to try to bank consistent trades unless you have a system that works on a repeatable basis. This is perhaps the toughest step toward penny stock profits since not everyone has the financial acumen to piece together a trading system. Luckily, we’re here to help…

3. Look for the Telltale Signs for Gains

Even though the biggest gains are typically impossible to predict there are telltale signs that can help you find the stocks that are most likely to produce a big pop. First of all, focus on OTC stocks. While OTC plays may be a bit riskier than their exchange-traded brethren, they also accounted for 40% of 2010’s top gainers. Also, focus on industries, like pharmaceuticals or semiconductors, that are prone to big, fast news-based gains. And be vary weary of stocks that are being promoted by paid pumpers… (More on that in Saturday’s Weekend Sleuth)

There’s no question that finding the next triple-digit gaining penny stock is a tall order. With tons stock promoters pumping their latest clients’ stocks, small-time investors opining their latest trades, and brokers trying to nickel and dime you on commissions, it can be overwhelming. But by taking a look at penny stock plays that actually made massive gains in 2010, we can better prepare ourselves to make sizable gains in the future.

Cheers,
Jonas Elmerraji
Managing Editor, Penny Sleuth

March 11, 2010

The Top 10 Gaining Penny Stocks for 2010 was originally featured in the Penny Sleuth.

That’s been especially true in 2010 as numbers missed expected targets for most of the year. But with indexes finally creeping into positive territory this week, the potential for  a fundamentals-fuelled rally is once again real. And that means a whole lot more for small-cap investors…

That’s because investing in the right small-cap stocks can significantly multiply your gain potential. Last week, while the S&P gained its paltry 3.1%, our watchlist picks jumped an average of 10.16% — that’s serious movement for only five trading days. That’s like making 528% annually on your portfolio – or, when compounded, enough to turn $1,000 into $142,043 in a single year.

With that in mind, let’s move on to this week’s watchlist.

In case you’re not familiar, each week, The Penny Sleuth takes a look at a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

As usual, while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers again this week, giving you the chance to offer up more speculative penny stock plays.

Check out the comments after this article to get a glimpse at a slew of new user-submitter penny stock picks — and the chance to submit your own!

First, though, let’s take a look at this week’s breakout penny stocks worth watching…

LMI Aerospace (NASDAQ: LMIA) – Small-cap aerospace company LMI Aerospace provides design engineering and structural assembly services to the defense and aerospace technology markets. Since October shares have been forming a bullish ascending triangle pattern, which suggests share could move significantly higher on a break above the $14 level. Don’t consider making a move until then…

Bank of Kentucky Financial Corp (NASDAQ: BKYF) – Small regional banking stock Bank of Kentucky Financial Corporation broke out above its 50-day moving average last week, a move that clears the stock to higher ground in the short-term. With a strong resistance level at $22 right now, a break above that price could make for a double-digit gain in March.

Suffolk Bancorp (NASDAQ: SUBK) – Suffolk Bancorp is another small banking play that hit my radar in this morning’s pre-market. The stock broke above a significant resistance level at $30.50 in Friday’s trading, and is confirming that level already this morning. As long as we see a close above $30.50 today, we could be in store for a big upside play later this week.

W&T Offshore (NYSE: WTI) – Our sole short side play this week is W&T Offshore, an independent natural gas exploration company. Shares have formed the dreaded head-and-shoulders pattern in the past few months, signaling to investors that selling time could be coming up. A break below shoulder level is our trade trigger on this play.

Share Your Penny Stock Picks…

Once again, we’re going interactive this week…

Just post your best penny stock pick below in the comments section of this article by Friday, March 12.

Submit your own breakout penny stock pick for March 2010 below…

Cheers,
Jonas Elmerraji
Penny Sleuth

March 8, 2010

4 Technical Patterns to Watch for a Penny Stock Breakout was originally featured in the Penny Sleuth.

The real problem now isn’t the numbers themselves – it’s the expectations.

We’ve just come off the heels of one of the worst economic bubbles in our history, and many on Wall Street expect a return to the same old way they did business… the way that got us in trouble in the first place. Any real recovery is going to take time, and until analyst expectations reflect that we’re going to see disappointing results when numbers are released.

That said, companies have seen an uptick in consumer sentiment, increased profitability, and reasonable valuations once again. With that in mind, we’re going to take the fundamentals out of the equation today once again and look out for some of the best breakout penny stock plays for March 2010 on the market right now.

In case you’re not familiar, each week, The Penny Sleuth takes a look at a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

As usual, while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers again this week, giving you the chance to offer up more speculative penny stock plays.

Check out the comments after this article to get a glimpse at a slew of new user-submitter penny stock picks — and the chance to submit your own!

First, though, let’s take a look at this week’s breakout penny stocks worth watching…

Red Robin Gourmet Burgers (NASDAQ: RRGB) – It isn’t just this restaurant chain’s menu that’s delicious… right now shares could be in for a bullish setup that could deliver some tasty profits in the coming week. In the second half of 2009, Red Robin formed a bearish head and shoulders pattern that provided a textbook-perfect short play. Now, with shares rebounding in a tight trading channel and a bullish moving average crossover in the wings, we’re betting on shares moving higher.

Gruma S.A.B. de C.V. (NYSE: GMK) – This Mexican tortilla and flour producer isn’t a stranger to our small-cap watchlist. In addition to providing a recession-resistant product in a volatile country, shares of the Nuevo Leon-based food processor are sitting at the bottom of an uptrending channel – a good spot to make a long-side bet.

Netgear (NASDAQ: NTGR) – Networking product company Netgear is benefiting in a big way from a breakout above its trend channel, a move that clears the company to higher ground. The $893 million firm has been riding a wave of improved analyst sentiment in the last month, and this latest breakout could make Netgear a winner in the coming week.

Quality Distribution (NASDAQ: QLTY) – We’ve talked about Quality Distribution in the past here at the Penny Sleuth. For a while now, the micro-cap trucking stock has been forming a bullish ascending triangle pattern. Wait for a breakout above current resistance, and this stock could be in store for a breakout ride.

Share Your Penny Stock Picks…

Once again, we’re going interactive this week…

Just visit the Penny Sleuth website, and post your best penny stock pick in the comments section of this week’s Watchlist by Friday, March 5. The two readers with the best performing picks each score a Penny Sleuth Prize Package that includes a special edition DVD of I.O.U.S.A.

Submit your own breakout penny stock pick for March 2010 below…

Cheers,
Jonas Elmerraji
Penny Sleuth

March 1, 2010

Four Breakout Penny Stock Charts for March was originally featured in the Penny Sleuth.

I spend a lot of time researching tiny, over-the-counter companies. Many of which are too small to mention here. After crunching the numbers, reading the reports, and listening to the calls, I sometimes check out the message boards. If for no other reason than to have a chuckle. People on those things crack me up.

Anyways, on almost every single one, there is a string of comments about the company jumping to a major exchange. Message boarders love the idea that their tiny stock will be flooded with institutional money the minute it hits a major exchange. That makes perfect sense. But what they don’t realize is only 2% of OTC companies ever graduate to a major exchange. So, the odds of your company doing it are slim.

Sometimes, the message boarders are right. Their stock may graduate to the NASDAQ, and then they might see huge gains. It does happen. However, not all jumpers are like that. In fact, many do something quite a bit different from what most believe…

Falling Down After the Jump

In Dan Haltzclaw’s The Little Black Book of Microcap Investing, he studies this very subject. His findings are actually pretty shocking. According to Haltzclaw, over 90% of all recent jumpers see their share prices fall by an average of 33% in the first one to four months.

That’s not what the message boarders think. They honestly believe that the minute their stock jumps, all their problems will be over. Haltzclaw’s findings disprove that notion pretty handedly.

Here is a quick chart of one of these average jumpers:

But, that’s not the end of the story. In fact, it’s really the beginning of a much larger story…

Second Stage of a Jumper

It’s not that institutional money doesn’t ever come to these companies. Of course it does. Just not right away, as the message boarders seem to think. Why? Well, there are a lot of people that want to dump their shares too. Chances are, in the time between the graduation announcement and the jump, investors (most likely message boarders) are buying up a lot of new shares. When this happens, it gets other shareholders nervous. They see that they are sitting on nice gains, and want out. So, the stock gets listed, and early investors bail.

This usually starts a free fall for a few months until it levels back out. When that happens, we have a buying opportunity.

In his book, Holtzclaw found that six months after graduation, investors bring the share price back up to the graduation price. So, if you have a company that falls 50% after it jumps, and you buy it, chances are it will go up 100% to where it was trading at before. Brilliant! But, it’s not as easy as that…

Some stocks don’t follow this trend at all. Some just continue to go down, while others go up much more than just to the graduation price. Finding the right ones is not easy. It takes time and effort.

But it’s worth it. Investors of Transmeridian, after it initially slumped, go to realize gains of 333%!

We’ll keep looking for the next Transmeridian. When we find it, we’ll let you know…

Sincerely,

Jim Nelson
May 9, 2008

P.S.: Greg Guenthner and I spend a considerable amount of time diligently studying everything — management, balance sheets, growth rates, cash flow, etc… By doing this, we’re the first to find the right time to buy these second stage jumpers.

Editor’s Note: As always, send any questions or comments to us at jim@pennysleuth.com.

Profit from Graduation to a Major Exchange was originally featured in the Penny Sleuth.

A few weeks ago, I met up with my colleague Chris Mayer just outside of Washington, D.C., to grab a bite and commiserate on the state of the markets. Chris, a much-heralded value investor, is the editor of Capital & Crisis and the author of the recent bestseller Invest Like a Dealmaker: Secrets From a Former Banking Insider.

We talked for quite a while about interesting companies we’ve come across in our research, and the industries we like and hate. And as we prepared to go our separate ways, one theme became quite clear: This is the most difficult market either of us has seen in a long, long time.

Nevertheless, a good company is a good company. And I think readers of my exclusive Bulletin Board Elite have plenty in their portfolios right now. Of course, if something changed our opinion on a particular stock, we would quickly get rid of it. But despite the recent swings in some of our positions, all of the reasons we bought in the first place are true.

It’s difficult to argue with unemotional logic. So while traders buy, sell and then buy some more as over-the-counter securities swing wildly up and down, we remain vigilant. This year holds many uncertainties for the market as a whole. However, almost every single week, the companies we follow inch closer and closer to discovery, approval and commercialization.

Yes, despite this rough and tumble market, we’re finally starting to see some of that progress come into play in share prices. Last week, my Bulletin Board Elite readers locked in somewhere between 45%-56% gains on one such company in just one day — and it’s one that I’m predicting will continue its upward drive as the word gets out on this power play.

The Power of Good Publicity…

Getting that word out is unquestionably valuable, but it’s not always easy to do. Stock in a great business is worthless until enough investors agree that there’s value to be found. And for the microcaps we deal with, it can be a bit frustrating at times that the average investor doesn’t see what we see…

That’s why investor relations can be so important to bulletin board companies. No, we’re not talking about some bogus firm running a pump-and-dump scam. Rather, this is an exercise in simply letting people know about undervalued buys so a company’s stock price can align with its potential…

We’ve seen more and more companies get that message recently — like in yet another of my Bulletin Board Elite picks, for example — and it’s a message that’s going to have a huge effect on a lots of readers’ portfolios…

Best,

Greg Guenthner
March 31, 2008

How the OTC Market Handles Rough Patches was originally featured in the Penny Sleuth.