Penny Stocks That Outwit Houdini
Posted: Thursday, January 21, 2010
by John Paul Whitefoot
Penny Stock Insider
The current economy continues to be more than a little bewildering. While economic indicators suggest the gears of recovery are slowly grinding, there are some top economists who believe the country's financial crisis is far from over.
Looking back, 2009 was a great year for penny stock investors and represented the best opportunity in decades for many fundamentally solid penny stocks. In 2009, the S & P 500 returned 26.5% and the Russell 2000 Growth Index returned 34.5%.
There are however, a number of well seasoned economists who believe the U.S. is not yet out of the woods. UCLA economics professor Michael Intriligator, said recently that the recession isn't over and that the economy won't be back at pre-slump levels until 2013. Further, the labor market won't recover until 2016.
Speaking with imagery that even I can grasp, Gluskin Sheff + Associates chief economist David Rosenberg agreed, calling the current climate a "Houdini market," one that rises on any news, be it good or bad.
"The good news is evident; the bad news is always rationalized," he noted. Mr. Rosenberg was reflecting on how stocks shrugged off last Friday's U.S. employment report, which showed another 85,000 jobs disappeared in December.
"So we are left with the impression that had the number come in at +85,000 and the market rallied, that we would have been notified that even as rate hike expectations intensified, there was no need to worry because the economy was so strong."
This is why he called it a Houdini market'; Mr. Rosenberg was referring to Harry Houdini, the legendary magician and escape artists who could squeeze his way out of almost anything.
Citing several reasons as to why the recession is not over, Mr. Rosenberg noted that roughly 90% of the recent expansion was attributable to stimulus. He also pointed out that normal post-recession growth is 7.3% annualized in the first quarter after a slump, which means 2.2% is, he says, "actually quite worrisome."
Though, for penny stock investors, this does suggest that there is plenty of room for long-term growth. While many deserving penny stocks made strong gains last year, 2010 should continue to be a boon to astute penny stock investors.
Why? Because smaller companies can give you more leverage for growth than large cap stocks. Well run penny stock companies are also more nimble, and can react better to the changing marketplace.
And by reacting to the market place I do not mean those penny stock companies that lean on the corporate mentality of cutting their staff to "profit prosperity".
Two such penny stock companies that have shown they are wiser than many of their large cap peers are Continucare Corp. and Simulations Plus, Inc.
Strong first quarter results have been helping Continucare Corp.'s (CNU- AMEX) share price trend steadily higher. An encouraging outlook, large cash position, and no long-term debt should help CNU continue to gain steam.
In early November, CNU announced that first quarter revenue increased 17% year-over-year to a record $76.0 million. Net income for the period climbed 113% to $2.5 million, or $0.04 per diluted share.
Despite the global economic slowdown, Simulations Plus, Inc. (SLP Nasdaq) continues to grow and generate earnings and cash. While the company reported solid third and fourth quarter results, its recently announced first quarter results point to renewed growth.
On January 14, SLP announced that first quarter revenue increased 14.2% year-over-year to $2.43 million. Net income for the period jumped 38% to $430,000, or $0.03 per fully diluted share. Further, the company's cash position increased 31.5% to $7.97 million.
Walt Woltosz, Chairman and CEO, said, "These results represent a new record first quarter for both revenues and earnings. We believe much of the growth is the result of the aggressive marketing and sales program we began early in 2009."
The markets at large may need Houdini like illusions to justify their optimism, but these penny stocks can turn to their solid fundamentals for long-term growth.
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