| "bottom-link"> | | | | stocks out there worth padding your investment |
| | | | portfolio with. While some excellent penny stocks |
| While the current recession has seen a number of | | | | were unnecessarily dragged lower this past autumn |
| large-cap stocks fall into the penny stock range, that | | | | with the rest of the world markets, there are others |
| doesn’t mean they’re still a safe bet. | | | | that bucked the trend. |
| In fact, there are a lot of broken stocks out there | | | | In general, small cap value stocks have been the |
| worth avoiding at all cost. At the same time, a | | | | poorest performers so far this year, but recent |
| recent study shows that historically, small-cap stocks | | | | trends show they could be the first to rebound if the |
| blaze a leading trail out of a recession. | | | | economy improves. Penny stocks can also follow the |
| I use to hate going into stores and seeing the hand | | | | same patterns as small cap stocks. During economic |
| written notice, Nice to touch, nice to hold, if you | | | | downturns (recessions) investors turn to safety and |
| break it, consider it sold. There’s no basis | | | | liquidity and shun so-called riskier markets. Russell |
| for my hatred, it just annoyed me. | | | | Investments recently looked at the stock |
| Though, it was a life lesson when my father knocked | | | | market’s performance during the last five U.S. |
| over a coffee mug tree stand display; breaking most | | | | recessions (going back to 1980); their research |
| of the contents. He ended up buying a couple | | | | uncovered clear trends in value stock behavior. |
| dozen mugs. The only salvageable one was | | | | On average, "value has underperformed relative to |
| World’s Best Golfer. He isn’t. | | | | growth during periods of economic contraction." |
| Unfortunately, as tax payers, we learned recently | | | | Further, "This relative underperformance has |
| that our money is being used to take serious stakes | | | | reversed almost immediately when the economy |
| in broken companies like General Motors and Chrysler. | | | | bottomed out and turned upward, and value has |
| GM followed Chrysler into bankruptcy earlier this | | | | markedly outperformed growth in the early periods |
| week; ending its 93 year stay on the stock market | | | | of economic expansion." |
| with a share price of $0.75. A far cry from its $100 | | | | Most significantly, the Russell report found that, "This |
| share price in 2000. | | | | pattern has been strongest in the small cap segment |
| Based on the last trading price, GM’s market | | | | of the market." |
| capitalization was about $457 million; just one-tenth | | | | One analyst ran numbers on U.S recessions going |
| of its 1929 market cap of over $4 billion. And a far | | | | back to 1931. He noticed big performance differences |
| cry from its $60 billion valuation at the beginning of | | | | between large cap and small cap stocks during |
| this decade. | | | | recessions and recoveries. There was less of a gap |
| Anyway
thanks to the recession
and maybe | | | | between value and growth stocks. Small cap |
| the odd bad corporate decision made at GM, the | | | | stocks very much lead out of a recession, he |
| federal government is set to own 60% of the new | | | | said. |
| and improved GM. The Canadian government will | | | | What are value stocks? According to |
| have a 12.5% stake in the company and the UAW a | | | | Investopedia, a value investor believes that the |
| 17.5% hand. | | | | market isn't always efficient and that it's possible to |
| All told, the government, union and other partners will | | | | find companies trading for less than they are worth. |
| own 90% of GM. The remaining 10% is left to | | | | Growth stocks on the other hand are shares |
| former bondholders, who paid a princely $27 billion for | | | | in a company whose earnings are expected to grow |
| the right. | | | | at an above-average rate relative to the market. |
| For the record, had the governments not stepped in, | | | | Many penny stock investors are a mix of both. We |
| employees and suppliers would have gone unpaid. If | | | | like to look for value stocks that are going to |
| GM and Chrysler had liquidated, their supply base | | | | outpace the market. An oxymoron for seasoned |
| would have vaporized
taking Ford down with it. | | | | investors that shun penny stocks — but |
| It’s more complicated than that
but | | | | it’s a mantra many penny stock investors live |
| it’s a good barrier to entry. | | | | by. |
| The point is
the recent recession has been a not | | | | Why? Because many investors believe value stocks |
| so gentle reminder that blue chip behemoths are not | | | | are cheap for a reason. And
many equate |
| a sure bet. It’s also worth noting that not all | | | | penny stocks with being cheap. Fortunately, |
| penny stocks are chafe waiting for the scythe. | | | | correlation is not causation. |
| In fact, there are a large number of unbroken penny | | | | |