Traders obsessed with short-term results have never been as successful as patient long-term investors. Get-rich-quick investment advice is a fantasy. Get-rich-slow is a validated strategy for real wealth.

Today, it is more important than ever to keep the long-run perspective firmly in mind…

Lest you’ve forgotten, world financial markets are in a state of unparalleled disorder. More capital has been drained from markets, thanks to the irresponsibility of politicians and the acquiescence of naive citizens, than at any time in modern history. The damage done by bombers and tanks in world wars has been matched by the unintended consequences of central planning and bureaucracies.

Fortunately, however, the political and philosophical trend lines are all pointing to true long-term reform. The pendulum’s swing cannot be stopped, and the coming decades will be unmatched in terms of technological progress and wealth creation.

This is exactly the time to be investing in the future. Metaphorically, and sometimes actually, there is blood in the streets. You’ve probably heard that Baron Rothschild, the famously successful 18th-century British investor, said, “The time to buy is when there’s blood in the streets.” In fact, some believe the original quote was, “Buy when there’s blood in the street, even if the blood is your own.”

Remember, investors who bought and held a diversified portfolio of disruptive technologies before and during the Great Depression got rich. Those who lost confidence because they weren’t seeing the quarterly gains typical in bull markets missed their golden opportunity to “buy low.”

This, I repeat, is a chance of historic magnitude to buy the companies that are going to change the world and power the recovery — like the one I am going to tell you about today.

Producing Purified Stem Cell Populations

One company has accomplished a major milestone: The demonstration that the company can produce purified cell populations…

As I’ve explained in discussions about other stem cell companies, the ability to produce pure cell populations is critical. The FDA is extremely concerned that the introduction of unpurified stem cells might cause inappropriate cell growths, or even cancers.

Geron’s nonpurified stem cell lines did, in fact, produce microcysts in early tests.

For liver or any other SC therapy, therefore, it is critical that the cells used in a therapy are only the type needed for that therapy.

While I had little doubt that this company would solve this problem, I had no idea what the solution would be.

I spoke to the leading researcher who helped me understand this breakthrough technology. Essentially, this company has discovered how to replicate a feature of early embryonic development that begins the process of cell differentiation. Known as the “primitive streak,” it is the initial division of undifferentiated embryonic cells into “bilateral symmetry.” Some bioethicists, in fact, consider this event the “ensoulment” or beginning of life.

Regardless, the primitive streak has unique characteristics that provoke very specific movement of cells within the embryo.

The important thing to know is that this company has created artificial primitive streaks. Therefore, they can provoke purified cells to migrate into purified cell populations.

First American Donors for Cell Bank

This company also enrolled the first U.S.-based donor in its program to establish the clinical-grade human parthenogenic stem cells capable of immune-matching most humans.

They have already gone through the rigorous bureaucratic and regulatory process to assure that the cells created by these donor cells are acceptable to the FDA.

Regulatory approvals were obtained from the Institutional Review Board (IRB) and the Stem Cell Research Oversight (SCRO) Committee. Cell lines have already been collected offshore, but the American side is critical to the company’s road map.

HpSCs are not just effective replacement cells; they are young. People who use these cells for therapies will have organs and tissues with life spans that will extend for as much as a hundred years or more.

This will change the nature of medicine as we know it…

Patrick Cox
for The Penny Sleuth

Mass Marketing Regenerative Medicine: A Small-Cap Biotech Set for Explosive Gains was originally featured in the Penny Sleuth.

A quick glance at a chart shows the Russell rallying alongside the major indexes during the second half of June, yet quickly falling behind in as July progressed. In fact, over the past three months of trading, the Russell has dropped more than 3.3%. The next biggest loser across the same time frame is the S&P 500, which is down a little more than 1.1%.

Investors’ fears can sharply move the microcap market. Sentiment is magnified in smaller stocks, thanks to investors rushing to build speculative positions during a market run-up— and stepping over each other to sell when the market takes a turn for the worse.

For the past few weeks, we’ve been dealing with the latter. The cheapest stocks on the market have been drastically underperforming their bigger peers.

As of yesterday’s close, there were approximately 750 stocks trading on major U.S. exchanges for less than $3. Of these names, only 25 registered a new 20-day high yesterday. And only two— that’s right, 2— hit 52-week highs.

For microcap traders, there are obviously very few long setups to choose from right now. But if you do find a strong stock to trade in this market, I recommend using additional tools to confirm that it is in fact a trade you want to make.

Consider the following:

• Attack the throwback, not the initial breakout – When a stock breaks out of a consolidation pattern, you might want to consider waiting to it re-test support before putting your money on the line:

In the above example, instead of chasing the initial breakout at $24, you can wait to see if shares successfully retest new support before initiating a position. If the stock retests $24 and moves higher, your chances of getting whipsawed decrease substantially.

• Set a stop when you trade and honor it – If you find a strong stock in a weak tape, immediately set a stop loss. This way your exact risk is defined when you take the trade. Once your stop is set, do not move it or cancel it. Take your lumps and move on if the stop triggers a sell – it’s better to lose a little than to let wishful thinking put your portfolio in danger.

• Hedge your bets – For the more experienced trader, a very short-term position in a weighted ETF, such as Direxion Small Cap Bear 3X Shares (NYSE:TZA) can be a helpful hedge during a market correction.

Most importantly, remember this important trading adage: When in doubt, get out…

Best,

Greg Guenthner
Penny Sleuth

Are Small Stocks Flashing Warning Signs? was originally featured in the Penny Sleuth.

As I write, the markets are still reeling from massive losses at the beginning of June.  And investors are anxious about what the market has in store as the “summer doldrums” continue.

But even though investing is challenging, opportunities are springing up for those who know where to look…

That’s because quality is looking cheap right now… at least that’s the sentiment being shared by portfolio managers at Morgan Stanley.

Their chart below shows just how skewed high-quality stock prices are looking right now.

The key take-away: high-quality stocks are trading at low-quality prices.

That’s a problem that won’t last for long. In fact, it already appears to be reversing right now…

And that’s the reason to look for quality, even in this market.

A Double Down on Two Quality Sectors

That doesn’t mean that all quality stocks are equal right now, or that you should go on a buying spree – June’s pullback is still a concern for stocks.

That’s why I’ve found two specific sectors you should be looking at. They are offering a solid mix of the cheap valuation and market strength.

I’m talking about green energy and IT infrastructure.

Because both of these industries are full of small-cap names, there is ample opportunity for penny stock investors.

Don’t forget that it’s quality that’s being discounted. In my view, that means that seeking out companies with consistent (and predictable) earnings and growth is the way to go.

Here’s a glimpse at a few names that could be worth watching right now:

• Fusion-IO (NYSE:FIO): A month or so ago, I said that small-cap IT infrastructure play Fusion-IO was the only IPO that I’d even think about buying in this market. Higher-profile names like Pandora and LinkedIn have slid double-digits since going public. But, this stock has rallied nearly 17% since the retail investors have had a chance to buy shares.

(Note: If you followed my suggestion to buy FIO, reply to this e-mail and let me know how you’re doing on the position!)

• STEC Inc. (NASDAQ:STEC): Another infrastructure IT name, computer storage firm STEC is an industry favorite with solid and consistent profitability.

• LDK Solar (NYSE:LDK): Solar stocks have been under pressure of late. But this green energy name is a good way to bet on a turnaround. Shares have slid considerably on the year. I’d suggest waiting for early signs of strength before buying shares.

While I won’t be following these specific names (more on why below), they’re looking like a strong way to get exposure in this market. Even though stocks have been under pressure of late, there’s still ample opportunity to rake in gains this summer focusing on quality stocks.

Cheers,

Jonas Elmerraji
Penny Sleuth

Buy These Two Sectors For Small-Cap Value This Summer was originally featured in the Penny Sleuth.

One industry that’s seen its numbers increase this past year is one you might not expect: corporate training.

That’s right: In the wake of our current financial turmoil, many companies are making the decision to invest in an asset that’s not always noticed by investors… their people.

According to Josh Bersin, president of Bersin & Associates, a research firm that tracks enterprise learning and talent management, “Corporations are investing heavily in current and up-and-coming leaders. We see an emphasis in this area across all sectors. Looming retirements, gaps in management talent and economic pressures are causing companies to funnel dollars into their leadership pipelines.”

Those economic pressures are coming to a head this year as the 500 largest companies have already lost almost 43% in the last 11 months. Now companies are attempting to streamline their businesses by getting more out of their talent pools.

Bersin’s group estimates that the almost $59 billion corporate learning market grew 5% in 2007, a number that’s bound to rise as more and more companies opt to save money by outsourcing their training operations.

But the economy isn’t the only reason the corporate training market looks good… The industry has wide margins and is important enough to big business’s bottom line that training won’t be going anywhere anytime soon.

Outsourcing is the key to profiting from the corporate training world. When companies outsource their educational initiatives to companies that focus on teaching professionals full time, they can take advantage of big cost savings and training programs superior to what they can design in-house.

And the trend’s being proven by the profits corporate trainers are raking in. Small-cap companies like FranklinCovey and SmartPros are a couple of firms that have seen their quarterly incomes increase in the last quarter because of it. But one company stands out from the rest…

GP Strategies Corp. (GPX: NYSE) is a diversified training solutions and performance improvement company. It’s diversified because its business covers all aspects of the performance-improvement market — from e-learning to training to engineering, GPX is in the business of making companies run better.

And it’s running itself pretty well in the process…

In 2007, the company increased its net income 46%, to $9.68 million, and widened its margins 14% in the last quarter. But we’ll get back to the financials in a bit…

The company is involved in a pretty varied line of businesses. Besides its bread and butter — the corporate training arm — it’s also involved in engineering and consulting, a couple of lucrative businesses that helped GPX’s sales grow to $248 million in 2007. Additionally, the company has been growing itself through strategic acquisitions, including two that contributed to more than one-third of the company’s overall sales.

The company also has a sizeable $140 million backlog, which means it’s not lacking for customers right now. The company expects to recognize much of its backlog as revenue this year.

GP Strategies has more than 500 clients, most of whom are Fortune 500 companies. The primary industries it services include automotive, oil and gas, chemical, technology and government. Its industry specialization gives it a competitive advantage over other corporate training vendors that don’t have the expertise GPX can bring to the table.

The company’s financials are also rock solid. The company has working capital of $21.1 million and no long-term debt, giving it quite a bit of security right now. GPX also has positive free cash flow of almost $8 million.

What is it doing with its cash? Well, for starters, it’s using it to buy back stock and extinguish debt. GPX has an aggressive stock buyback plan that ate up almost $4 million last quarter. It also retired just over $4 million of debt. Both moves are great for investors.

With a current share price of $3.98, you’re paying less than 72 cents on the dollar for GPX’s book value — that’s a hard deal to pass up. We’ll be keeping tabs on this stock over the next few months to see how it performs.

Cheers,
Jonas Elmerraji

January 13, 2009

GPX: The Corporate Training Penny Stock for 2009 was originally featured in the Penny Sleuth.