The year 2008 certainly won't be regarded as a winner for the stock market. There is an upside though - big pullbacks can leave behind big values that will inspire the market's recovery. That's great news for penny stock and small cap stock investors, since those stocks generally lead such recoveries. The question is, did stocks actually hit a bottom in 2008?
Most indications are that the market did indeed make a bottom in late 2008. Yes, there are lingering problems that will need to be solved. However, the average P/E ratio is approaching single digits, which has historically occurred at major bottoms.
But what about problems like high unemployment, lingering corporate losses, and a shrinking GDP? Those are fair arguments, but those are issues that the economy and the market have overcome several times in modern history. Though the media would have you think the status quo is permanent, it's not. Everything is cyclical.
But just how precise does an investor's re-entry need to be? There's the rub - nobody really knows when the exact bottom has been made until after the fact, but nobody can really afford to not be in the market at the exact bottom.
On average, owning stocks from the exact market bottom to a point twelve months later translates into a gain of more than 32%. Waiting a mere three months to step into the same bull market whittles an investors' gain down to less than 15%.
What about small caps during the early stages of a new bull phase? Same story, based on recent data. Coming out of 1990's funk best served the Russell 2000 Small Cap Index in 1991, with a 43.7% gain that year. The S&P 500 gained only 26.3% in 1991. Following the 2002 bear market, the Russell 2000 easily topped the S&P 500 in 2003. The Russell was up 45.4% that year, versus a 26.4% gain from the S&P 500.
The point is, small cap stocks (many of which are penny stocks by the end of a bear market) are also an investor's best bets during the early stages of the next bull market.
Sure enough, in the aftermath of 2008's debacles and 2009's stimulus efforts, many of these small cap stocks and penny stocks are starting to perk up ... not unlike how we saw 1991 and 2003 unfold.
Take BioTime Inc. (OTC:BTIM) for instance. Despite no net profits, this biotech stock managed to gain more than 300% in calendar 2008. The basis for all the buying is the promise of profits in the distant future, though the foundation is being laid now. In other words, it's perceived as undervalued relative to the opportunity.
WorldGate Communications Inc. (OTC:WGAT) is another example of a micro cap company that started to thrive in the height of the recession. WorldGate swung to a profit in the third quarter of 2008. More important to investors, the stock rallied from 1 cent to a peak of 39 cents between November and December of 2008.
CVR Energy Inc. (NYSE:CVI), despite being listed on a major exchange, is still one of those small cap stocks that may have actually benefited from its size during the contraction. This oil refiner swung to a profit during 2008, and has continued to widen its margins. Shares gained 136% between late October and late January.
In simplest terms, the real winners are starting to emerge from the rest of the crowd. And, a large portion of those winners are indeed small cap stocks and penny stocks. The media may be trying to keep investors terrified, but history - and recent results from select micro cap stocks - are offering opportunities for tremendous gains right now. - 15224
Most indications are that the market did indeed make a bottom in late 2008. Yes, there are lingering problems that will need to be solved. However, the average P/E ratio is approaching single digits, which has historically occurred at major bottoms.
But what about problems like high unemployment, lingering corporate losses, and a shrinking GDP? Those are fair arguments, but those are issues that the economy and the market have overcome several times in modern history. Though the media would have you think the status quo is permanent, it's not. Everything is cyclical.
But just how precise does an investor's re-entry need to be? There's the rub - nobody really knows when the exact bottom has been made until after the fact, but nobody can really afford to not be in the market at the exact bottom.
On average, owning stocks from the exact market bottom to a point twelve months later translates into a gain of more than 32%. Waiting a mere three months to step into the same bull market whittles an investors' gain down to less than 15%.
What about small caps during the early stages of a new bull phase? Same story, based on recent data. Coming out of 1990's funk best served the Russell 2000 Small Cap Index in 1991, with a 43.7% gain that year. The S&P 500 gained only 26.3% in 1991. Following the 2002 bear market, the Russell 2000 easily topped the S&P 500 in 2003. The Russell was up 45.4% that year, versus a 26.4% gain from the S&P 500.
The point is, small cap stocks (many of which are penny stocks by the end of a bear market) are also an investor's best bets during the early stages of the next bull market.
Sure enough, in the aftermath of 2008's debacles and 2009's stimulus efforts, many of these small cap stocks and penny stocks are starting to perk up ... not unlike how we saw 1991 and 2003 unfold.
Take BioTime Inc. (OTC:BTIM) for instance. Despite no net profits, this biotech stock managed to gain more than 300% in calendar 2008. The basis for all the buying is the promise of profits in the distant future, though the foundation is being laid now. In other words, it's perceived as undervalued relative to the opportunity.
WorldGate Communications Inc. (OTC:WGAT) is another example of a micro cap company that started to thrive in the height of the recession. WorldGate swung to a profit in the third quarter of 2008. More important to investors, the stock rallied from 1 cent to a peak of 39 cents between November and December of 2008.
CVR Energy Inc. (NYSE:CVI), despite being listed on a major exchange, is still one of those small cap stocks that may have actually benefited from its size during the contraction. This oil refiner swung to a profit during 2008, and has continued to widen its margins. Shares gained 136% between late October and late January.
In simplest terms, the real winners are starting to emerge from the rest of the crowd. And, a large portion of those winners are indeed small cap stocks and penny stocks. The media may be trying to keep investors terrified, but history - and recent results from select micro cap stocks - are offering opportunities for tremendous gains right now. - 15224
About the Author:
John Monroe has devoted over 20 years to understanding and effectively analyzing small cap stocks poised to create above average returns. If you would like to receive timely penny stocks trading ideas like the ones described above, the Small Cap Network Newsletter is a tremendous free resource and starting point toward uncovering hidden gems in today's dynamic market environment.
