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Published: January 26, 2010
OK... as Steve Sjuggerud mentioned, here is
a true "penny stock secret."
I call it hitching a ride.
Here's how it works...
On October 23, 2001, Apple launched its small digital music
player, the "iPod." In the past eight years, the tech giant has
sold over 218 million units, which works out to around 75,000
players sold per day.
Then, in 2007, in what USA Today called "the best launch for any
consumer electronics product ever," Apple introduced the iPhone,
which sold more than 3.5 million units in just the first year.
In 2008, iPhone sales tripled to 13 million... and 2009's
numbers reached an incredible 24 million units sold. You can
make a case for the iPhone being the hottest electric device of
all time.
You probably know the other part of the story...
Shares of Apple more than doubled in 2009. They've soared more
than +1,000% over the past 10 years. It's one of the greatest
business stories -- and greatest stock moves -- in American
history.
If you like, you can go ahead and buy Apple stock right now.
It's a great company with a bright future. But the exceptional
gains in this stock are long gone. I have a much, much better
idea for you if you're interested making a fortune from huge
product hits:
For the biggest gains, don't buy the huge company with the hot
product... buy its suppliers. Look for companies "hitching a
ride" on its success. Here's why...
When a California-based penny company called Synaptics
(Nasdaq: SYNA) landed a contract to supply Apple with the
"scroll wheel" feature on the iPod, shares of the small firm
skyrocketed from $2 to over $40 -- a gain of more than +1,840%.
A company called Skyworks (Nasdaq: SWKS), which provided
a key radio-frequency component for the iPhone, has gone from
$4.49 a share to $14 since the deal. That's a gain of +218%.
You see, when a giant company like Apple hits it big with a
product, it can rise +25%... +50%... or even +100% in a year's
time. But what most folks don't ever consider is one of the
great secrets of investing in penny stocks -- stocks under $10:
You can make far more money with the small, niche suppliers that
suddenly see a flood of new demand.
Now... before you go out and buy companies that provide vital
services, materials, or components to successful companies like
Apple (Nasdaq: AAPL), Nike (NYSE: NKE), Wal-Mart
(NYSE: WMT), or ExxonMobil (NYSE: XOM), keep one thing in mind...
One supplier to the iPhone is Korean electronic giant Samsung.
Samsung's business is huge and diversified. Sales to Apple don't
make up a significant portion of its overall revenue. It's not a
good "hitch."
We need to find small, niche players in the "sweet spot," where
one contract from a major player could double or triple revenues
in the matter of a few years. These sorts of ideas don't come
around every day, but when they do, you can make extraordinary
gains in them.
To find them, I listen to a lot of quarterly conference calls
and read annual reports to find new ideas and new suppliers.
Also, when I see a big consumer product hit or commodity trend,
I always ask myself, "What is the less obvious way to play this?
What is the 'hitch a ride' idea here?"
Bottom line is, when you see a major business success developing
for a large company, don't rush out to buy their shares. The big
gains are long gone. The shares are likely way too popular and
overvalued. Look to hitch a ride with smaller, cheaper stocks.
-- Frank Curzio
Editor
Penny Stock Specialist Note: This article originally appeared on
Daily Wealth. |
