Of these 75 names, 14 are Americans born within nine years of each other in the mid-1800s. Magnates like John D. Rockefeller, Andrew Carnegie and J.P. Morgan, to name a few. Best-selling sociology writer Malcolm Gladwell says that’s no coincidence. Gladwell’s latest book, Outliers, explores how factors other than intelligence and ambition affect the most successful members of our society.

In this case, the decade in which these powerful people were born was just as important as their vision and drive, according to Gladwell. “What’s going on here?” he writes:

“The answer becomes obvious if you think about it. In the 1860s and 1870s, the American economy went through perhaps the greatest transformation in its history. This is when the railroads were being built and when Wall Street emerged. It was when industrial manufacturing started in earnest. It was when all the rules by which the traditional economy had functioned were broken and remade. What this list says is that it really matters how old you were when that transformation happened.”

The Right Place, the Right Time…

Just as railroads, steel and manufacturing shook up 19th-century America, the credit crisis and this wicked bear market are changing our own investment universe.

We have to take advantage of the fact that we are in what could be the right place at the right time. The market is presenting us with tremendous opportunity. And what better place to look than at the smallest public companies in the world — the aggressive, nimble firms that can adapt and grow while the titans of the old world slip and fall.

While the GM and Ford’s of the world struggle to shed the weight of their past, small companies have a much easier time of adjusting on the fly and adapting to the new economic conditions. Some of the biggest names on Wall Street fell this year because they were slow to react when the credit crisis was on the horizon.

In our current issue of Penny Stock Fortunes, we’ve giving our readers four small companies that are well positioned to make the transition to the post-credit crisis reality. You won’t read about these companies in the Wall Street Journal, but that just means you have a better chance to load up before the rest of the market catches on. You can join our readers at Penny Stock Fortunes, and learn about our CXS Money-Multiplier System, in this special report.

Best Regards,
Greg Guenthner
December 4, 2008

Penny Stocks and the Post-Credit Crisis Reality was originally featured in the Penny Sleuth.

I don’t get it. Is it just me, or doesn’t it seem like those old stodgy suits on Wall Street have enough ways to see how the big stocks are doing? I mean, what, if anything, does the Dow Jones Industrial Average track? How about the S&P 500?

Well, that’s fine. They can keep all their mega-cap indexes, ETFs, Spiders, etc. We’ll keep our Russell 2000. But when it comes down to it, who cares about indexes? How many investors need to track 300 stocks, let alone 2,000?

That’s why here at Penny Sleuth, we try not to get too philosophical about investment trends and what the market is doing. (Although I have to admit, it’s hard not to sometimes.) What get us excited are huge growth opportunities in small-cap stocks. So, that’s what I’ve got for you today…

Opportunity #1: The Only Company That Can Handle All of Canada’s Problems

The first company is one that was first mentioned in an article back in October, but is still going to have a big year this year. Currently, from the moment I first discussed it, it’s up 32%, but it has tons of room to grow. The company is Aecon Group, Inc. (TSX: ARE).

Aecon has been a leader in Canada, especially in the Toronto area, in various businesses, which include infrastructure, concessions, buildings and industrial.

The infrastructure segment of Aecon’s business includes road, highway and airport runway construction; building dams, tunnels and transit systems; as well as utility construction like water and sewer systems, telecommunication networks and even mainline gas projects.

Aecon’s concessions segment takes care of maintenance, management and upgrades that go along with the ongoing operations of certain infrastructure projects.

The company’s buildings segment includes projects like commercial office buildings, schools, hospitals and government buildings.

And finally, its industrial segment handles everything from industrial pipe manufacturing and platform/assembly construction to electricity-generation facilities that range from nuclear and fossil to hydroelectric.

The company has proven itself throughout Canada by efficiently completing projects like the Bruce Power Used Fuel Dry Storage Facility for spent radioactive materials (from the many nuclear plants in Canada). But, the company is also diving into international projects like the construction and maintenance (over a 30-year period) of a new airport in Quito, Ecuador and a cross-country highway in Israel.

This kind of experience and trust from the Canadian government, not to mention the international community, puts Aecon in a great position in the upcoming infrastructure boom.

Look for it to do big things in ‘08…

Opportunity #2: This $160 Million Chinese Education Provider Is Set to Explode

Most people typically associate things like pharmaceutical, home building and even technology companies as investment opportunities. But if someone were to tell you, “There’s a real opportunity to make big money on Chinese education,” you’d probably say they’re crazy. Well, call me crazy…

China has made it a point of pride at how fast its population is becoming educated. From the land of a long agricultural past, it’s pretty obvious that more and more Chinese are moving to the cities to work in white-collar jobs. Well, those jobs aren’t just handed to ex-farmers. They must pass through a bit of education first. And educated, they are…

For instance, the number of students in China, who are enrolled in a regular institution of higher education, has risen from only 850,000 in 1978 to 13,335,000 in 2004, when the last number was published.

With more and more people moving to the cities in China, we expect to see that number skyrocket. The schools are trying to keep up on all the new students but are failing. So one little small-cap company, ChinaEdu Corporation (NASDAQ: CEDU), is starting to make huge strides.

This little educational services provider offers full online degree programs for various majors. It also offers many services for both schools (from pre-primary to colleges) and students. The company has exclusive long-term contracts with many schools. This secures its revenue stream for years to come.

Keep on eye on these two as 2008 goes on. We certainly will here at Penny Sleuth. Until next time…

Sincerely,

Jim Nelson
January 7, 2008

P.S.: Fellow Sleuth editor Greg Guenthner recently put together his “Best Picks for 2008” Report for his Penny Stock Fortunes readers. And I have to tell you, all four have the potential to outperform the rest of the market, hands down. But don’t take my word for it.

Two Small Caps to Watch in 2008 was originally featured in the Penny Sleuth.

Imagine if every time you bought a stock, you knew exactly what the company’s CEO, CFO, board of directors and even its legal team thought about its future. Maybe the CEO would pull you aside and say, “Listen, next quarter is going to be a big one. We just landed a multi-million dollar contract with a brand new client. When Wall Street finds out about it, our stock will double.” If you had this kind of “insider information” you’d be rich, right? You’d always know what to invest in and when. There is no limit to the money you could make.

The only problem is, you don’t have access to a company’s top management on a daily basis. And even if you do, they SEC prohibits them from doling out such crucial information.

Stinks doesn’t it?

Well, there is a way to know what the insiders are thinking before you ever buy another stock.

Thanks to Section 16 of the Securities Exchange Act of 1934, insiders are obligated to reveal any trading of company shares by the 10th day of the month after they bought or sold their company stock by filling out something called a “Form 4.”

On these Form 4s, the insider is required to disclose how much stock he bought, at what price and when he bought it. This is all crucial information. And you have access to it all.

By scouring the market’s Form 4s everyday, you can know exactly what stocks the insiders are bullish on. You can know exactly where the so-called “smart money” is betting the highest returns will be. And you can put yourself in the best position for outstanding returns.

By the way, financial sites like Yahoo! Finance, investor.com and morningstar.com all have an “insider transaction” link you can click on to see if insiders in any given company are buying or selling stock. These sites simply download information from the Form 4s and publish it for their readers.

So it sounds simple. Everyone with access to the Internet can be on top of what stocks the insiders are loading up on thanks to these Form 4s and financial Web sites. That’s the good news.

The bad news is, it’s not as easy as it may seem to decipher the insider transactions you see on the Form 4s or the financial Web sites.

Knowing a Good Signal From a Bad

For starters, there are hundreds (if not thousands) of insider transactions reported in a given day. So it would literally take you ALL day to go through them. And even then, you have to know what to look for. Unfortunately, not all insider activity is useful — even the reported “buys.”

Many times an officer or manager in a company receives stock options as part of his compensation package. These options can total in the millions of dollars. And every time a CEO cashes in on an option, he must file with the

SEC using a Form 4.

With that in mind, you may pull up a Form 4 and see what looks like a whole lot of insider buying by a CEO or CFO in a company. But in reality, he isn’t using his own money to buy stock in his company. He is simply using his options he was given by the board of directors to “cash in.”

This is not the kind of insider buying you want to look for. You want to look for the stocks that the insiders are loading up on with their own money — and enough of it that they would feel the pain if they lost out.

Another mistake many novice investors make is they bite at the first hint of insider buying. For instance…

If one insider buys a few shares of stock in his company, the last thing you want to do is blindly buy that stock as well — especially if the insider only put a small amount of money down and several other insiders are selling when he is buying.

Between 1958 and 1976 five prominent insider-buying studies were published by Rogoff, Glass, Devere, Jaffe and Zweig. They all wanted to show how much money you could make by buying the same stocks the insiders bought – shortly after they laid their money down.

In each study these gentlemen followed two hard and fast rules. First, there had to be more than one insider buying stock in the company – known as “cluster buying”. And second, the number of purchases had to significantly exceed the number of sell transactions. By following these rules, they were able to beat the market by a 2:1 margin.

And there’s another rule you need to follow as well…

Three Rules to Always Follow

Here are three rules you should remember if you’re looking at insider buying:

Rule No. 1: There must be a cluster of buying by the insiders. That means at least two different insiders must be buying at about the same time. And it should not just be directors (who tend to be paid in company stock in addition to a salary). We’re looking for top management putting up their own money.

Rule No. 2: The total number of buy transactions must significantly outnumber the total sell transactions.

Rule No. 3: The insiders must lay down a significant amount of their own money in the stock. And actually, there is a fourth rule that should seem glaringly obvious to you…

The Power of Small-Cap Stocks

Everyone knows that small-cap stocks have dominated the market — outpacing the large caps in each of the last seven years. But what many investors may not realize is that this is NOT a fluke. Historically, small-cap stocks have always led the market.

In a famous study conducted by Ibbotson Associates in the 1990s, they found that small-cap stocks outperformed all other stocks 56% of the time — including the blue chip stocks that get all the media’s attention — between 1926 and 1996. The average return in any given year was 14% for small-cap stocks. It was just 9% for large caps. And the longer you held your small-cap stocks, the better off you were.

Since 1926, there has NEVER been a period of 25 years or more where investing in large-cap stocks has proven more lucrative than investing in small-cap stocks. Of course, there are many reasons for the large small-cap returns.

1) There are a lot more small-cap companies on the market. About two-thirds of all the companies on Wall Street have a market cap of $1.5 billion or less. So as a small-cap investor, you have a much wider universe to find moneymaking opportunities.

2) Because there are so many small-cap companies, the major brokerage firms and institutions don’t have enough analysts to cover them all. So they simply ignore some of the fastest-growing companies on Earth. As a result, there are some tremendous companies trading for virtually nothing. And over time, all good bargains get discovered. We look for them before that discovery happens.

3) Good small-cap companies can adapt to the changing marketplace and react quicker than their larger, stodgier large-cap peers. They are nimble.

4) Simple math tells you that it is a lot easier for a $200 million company to double than it is for a $255 billion company to do the same.

Knowing most of the true bargains on Wall Street are in the small-cap universe is a huge advantage over your large-cap peers. And when you combine the explosive small-cap market with the insider buying strategies I talked about earlier, you give yourself a great chance to make some tremendous gains.

– James Boric
February 27, 2006

Your Secret Connection to the Insiders was originally featured in the Penny Sleuth.