Tag Archive for 'Could'

Let me start out by saying that the writer (Mike Brush) is very open and honest about his performance, which is refreshing, yet I am always skeptical of FREE IDEAS like these, which is why I never give any that someone else didn’t before. So, maybe the following article will help you determine if these stocks are worth buying right now or not.

#1

The first pick is a gold stock from Great Basin Gold Ltd. They trade under the ticker symbol GBG on the AMEX. I’m just going to get right to it – RIGHT NOW, THEIR BUSINESS SUCKS. In fact in the last decade they have never made a single penny on their sales. Last year the company lost $42 million on $48 million in sales. I agree with Mike Brush on the basis that the dollar weakness is and will push gold prices higher, but if that’s the case, JUST BUY THE PHYSICAL COMMODITY.

Stocks move higher based on the results of the business and if this business cannot turn a profit, the stock price will not rise. On the other hand, maybe the company will finally make money in the next year or ten years?! If that’s the case, the stock may very well rise exponentially. The bottom line is that there is ZERO MARGIN OF SAFETY in this stock. He recommends buying it below $1.75… we’ll see!

#2

Genspera (GNSZ) is the next company on the list and even though the story of an “anti-cancer” drug is one of the sexy stories ever – A LA “Boiler Room” – the company needs to make money to create any lasting value. Personally, you should put this on your radar screen and wait to see.

Maybe they’ll start turning a profit sooner than later. Mike recommends buying it at $2.30… I would wait til they start making money, which means that if you have to wait until the stock is much higher, do so. There is no margin of safety in a Start-up Biotech!

#3

The “hump stock” is ValueVision Media, ticker symbol VVTV. My first thought is “WHY NOW MIKE?” The stock is up 2,270% in the last 12 months! Now that it’s close to their annual high, isn’t it time to get out? Forgetting about their fundamentals, which SUCK coincidentally, and thinking just of supply and demand. The stock is at it’s year high! The price to have risked your money on a company that has lost over $200 million in the last decade was when it was at $0.25! At least then, a small investment would have paid off huge and wouldn’t have felt so bad.

The premise on this one is that the company may get bought out by ShopNBC or Comcast, but think about this. If you put in $500 at a quarter, you would now own 2,000 shares at $5. However, to own 2,000 shares now makes NO SENSE AT ALL! He recommends buying it under $4.50… I’d suggest not investing your hard earned money on speculation of a buyout.

#4

Fourth on the list – Chimera (CIM) – comes from the mortgage industry, where in 2009 America saw 3 million foreclosures. Whoa! The company reported a profit over the last 12 months, which is a good sign for the business. However, they haven’t been around that long and in two years prior they lost over $100 million dollars. JP Morgan Chase analyst Andrew Wessel thinks Chimera will pay out roughly 12 cents a share for the next year or produce a 13% yield just in dividends. I’m not so sure. First, they just started paying this dividend. Second, they have over $400 million in long term debt and only $21 million in cash.

Finally, looking at the company from a Birdseye view, you see that they have a market value of $2.55 Billion. This means the company MUST MAKE MONEY and lots of it into the future to justify their current stock price. Don’t be fooled by their current P/E ratio! Times are uncertain in the mortgage and housing industries. Mike says to “Buy below $3.75 a share.” And, that would make sense if you believe that they will continue to earn money. For me, I don’t care who’s a shareholder if the company doesn’t have any consistency, I cannot evaluate it.

#5

Finally, FalconStor Software, ticker symbol FALC. Despite having a strong financial position, the company has zero consistency. While that may not matter to a trader, it matters the most to an investor. Since 2000, FalconStor has increased its sales from basically nothing to over $90 million, yet they haven’t been able to turn a consistent profit just yet. No profits, no nothing!

The company has partnerships with EMC, IBM, and Sun Micro which has damaged their short term sales and despite all this, analysts still have higher target prices on the stock! Good thing they don’t get paid to be right. Mike recommends the stock under $3.50. Again, none of these stocks have any type of consistency to warrant an investment grade business.

If you like to speculate, do so with 5% of your portfolio, take Chimera (CIM) and let that one ride. Otherwise, stay away. The crazy thing about the market is that all of these companies could rise in value even though the underlying business is garbage. My recommendation is to let someone else risk their money on these and develop the bad habits that go along with it. Like Og Mandino wrote “Develop good habits and become their slave” and one great habit is to stay away from companies that have not produced consistent earnings. There’s a reason I’ve helped my clients and people that I’ve worked with consistently produce 30% a year on their money. It’s not through purchasing these kinds of stocks.

The problem with this entire article has to do with the fact that it presupposes that stocks under $5 have to be RISKY! If you study history, some of the best long term investors have bought “LOW RISK” stocks under $5. Warren Buffett bought Coca-Cola, Geico, and Washington Post around those levels. So, don’t think that just because the stocks above are very risky and present absolutely no margin of safety that all stocks around this price are the same!

If you would like to learn how to find and buy the RIGHT STOCKS, visit www.jonathanpoland.com or buy my book – Inflation Proof: The Ultimate Guide to Finding & Buying the Right Stocks.

Michael Brush’s article can be found in its entirety at http://articles.moneycentral.msn.com/learn-how-to-invest/5-attractive-stocks-under-5-dollars.aspx