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Gannett Co Deepdive

July 21, 2024 by Adam Koprucki

Gannett (“GCI”) offers an exciting combination of deep value, business transformation and uncorrelated, event-driven upside:

Cheap valuation – 5.3x EV/EBITDA and 27% FCF yield on ‘25 numbers for a business transformation story with strong management and improving profitability. This indicates a strong GCI intrinsic value.
Digital transformation is well underway with proof of concept, including 1) growing digital subs, 2) growing ad revenues and affiliate deals and 3) internal systems investments paying off
Ongoing debt paydown from asset sales and internal FCF should unlock a global refinancing of the capital structure, as hinted by debt tranches trading near par
Litigation against Google for anti-competitive behavior has merit and potentially unlocks a windfall. Additionally, AI content-copyright issues could lead to litigation claims and forward-looking licensing deals.

We target 200 – 300% upside over the next 1-2 years upon reasonable multiple rerating without giving credit for shareholder friendly capital allocation (i.e. buybacks).

GCI offers a combination of deep value, business transformation and uncorrelated, event-driven upside

GCI screens cheap on traditional metrics with an emphasis on FCF generation

GCI trades at 5.3x EV/EBITDA on ’25 street consensus estimates
We estimate at least $149mm of FCF before asset sales in ’25 (27% FCF yield)
Management has guided for FCF to grow at a 40%+ CAGR from 2023 to 2026 ($57mm => $155mm). Therefore, analysts still believe the company is undervalued based on its DCF valuation

Digital transformation is well underway with proof of concept, yet flies under the radar

Gannett is successfully mitigating print declines by growing digital (both subscription and advertising revs)
Topline will be down YoY in 2024; but inflecting to organic growth on a run-rate basis by YE’24
Combined with excellent bottom-line execution from cost cuts – EBITDA growing consistently from 2022
GCI Wacc is 8.1%

Equity rerate amplified by upcoming balance sheet developments

GCI is levered 3.6x net, but the junior 1.7x turns are in the form of a convert (trading in the high 90s). GCI P/E ratio is also stable at 15x.
Company is targeting a global debt refi this year before a potential favorable Google litigation development
GCI stock should rerate substantially given 1) dilution overhang removed, and 2) maturities pushed out

Litigation Optionality

Google Ad Tech Abuse litigation offers potential windfall that could be worth the market cap
DOJ and 34 states filed lawsuits against Google for unlawful monopolization of online advertising
GCI is the largest news publisher in the US and has its own lawsuit against Google for $1.7bn of damages
GCI’s counsel (Kellogg Hansen) took the case on contingency – compelling signal & no cost to GCI
AI copyright disputes could provide additional upside in the form of litigation claims (damages) and/or licensing deals

We calculate 200-300% upside based on above catalysts, without assuming any accretion from shareholder friendly actions. That said, the FCF profile and potential litigation proceeds should allow for capital return in the not-too-distant future, which could significantly increase forward returns.

Undeservedly Low Valuation: GCI is an exception in an otherwise secularly declining industry

We all know that print media – in this case, newspaper businesses – trade at deservedly low multiples given rapid declines in legacy print subscriptions and advertising revenues. This is not a novel observation. The world is going digital, multi-medium, video, social, yadda yadda. We get it.

And yet. Folks who have been paying attention have noticed that the New York Times (“NYT”) trades at 17x ‘24E EBITDA. From a value investing perspective, this is a fantastic number to have. If you travel back in time, NYT was not always a market darling; to the contrary, the stock traded in the more typical 5-8x EBITDA band until its re-rating journey took hold in 2017 or so. Over time, NYT has become a case study for how a scaled player with broad brand awareness can successfully execute a transformation to digital. It’s not make-believe or impossible. The NYT story demonstrates that the bid for news, commentary, gossip, and sports has remained steady. What has changed is the required delivery, as the modern audience wants a combination of print with audio companions (podcasts, etc.) and video. With the right mousetrap, timely content generation still has a role to play.

Enter Gannett. GCI has a crown jewel, USA Today, regional trophy assets (e.g. Palm Beach Post), and all sorts of smaller publications around the country. GCI remains a show-me story, but evidence has been mounting that the transition is playing out. We have seen notable improvements in digital KPIs, moderation in overall topline revenue declines, and affiliate partnership deals getting signed. For investors, we believe this is a key moment to take a look given that the company has explicitly guided to inflecting consolidated revenue to positive year-over-year growth at the end of this year. Upon achieving run-rate organic growth by 4Q’24 and with actual prints in 2025, our expectation is that the market should rapidly re-rate the equity. Given respective scales, we expect GCI to trade well below NYT’s multiple – we don’t want to be unrealistic – but even a range of 7-9x leads to a multi-bagger outcome from current levels.

Organic Revenue Inflection: Digital revenue growth expected to more than offset print declines by 4Q’24

This is a classic story of crossing lines (a large-but-declining segment shrinks while a small-but-growing area grows until, eventually, the negative impact from the bad is more than offset by the positive impact of the good). For GCI, total revenue declines are moderating sequentially as the legacy print business becomes a smaller piece of the pie. Meanwhile, digital revenues have had solid sequential growth throughout 2023 and are expected to ramp in 2024. Digital subscription revenues are growing high teens / low 20s, supported by ARPU upside and growth in subs, while advertising and services revenues enjoy upside from affiliate partnerships growing rapidly off a small base.

On this last point, when it comes to affiliate and content partnerships, GCI rents out platform eyeballs for 3rd party advertisers to monetize. As you can imagine, this involves little to no cost for GCI (95%+ incremental margins). We expect $20mm revenue in 2024 with minimum guarantees and management hopes to scale this to a $150-200mm topline business within 5 years.

Refinancing Catalyst: Balance sheet repair and refinancing optionality ignored by the market

GCI, which is highly regarded by many of the best investing websites, is focused on refinancing the capital structure in the near term. There are several key benefits:

Push out maturities and create a longer runway to continue executing on the digital transition
Resolve the dilution overhang from the converts (convertible into ~97mm shares with a $5.00/sh. strike)
Potentially improve terms – including rate, covenants, and restricted payments capacity

We believe that the capital structure is easily refinanceable given debt paydown accelerated by ongoing asset sales, inflecting FCF generation (40% FCF CAGR guided by management over 2023 – 2026), an additional equity cushion from recent re-rating ($2.3 –> $3.8), and debt tranches all trading near par. As a result, CGI fair value has been declining recently. We think it makes sense to work on the capital stack before the potentially lucrative litigation developments that might start as soon as September. We especially believe the company would aim to work something out on the convert, which has a $5 strike.

Free call options (ad tech abuse & AI): Gannett’s litigation opportunities could be worth $1bn+

Google’s Alleged Ad Tech Abuse: Google has enjoyed a stranglehold on the digital advertising ecosystem ever since it acquired DoubleClick in 2007. On 1/23/23, the DOJ filed a civil antitrust suit against Google alleging monopolistic ad tech abuse. A few points are worth calling out. First, this is not the Google vs. DOJ search case. That is separate and unrelated. Second, the DOJ is not acting alone: 17 state AGs signed on while Texas brought its own case and has been joined by 16 additional states. In total, it is the DOJ + 34 states all going after Google. Third, the case is proceeding in the “Rocket Docket” of Eastern District of Virginia with trial scheduled to start 9/9/24. Litigation can drag forever, so we find this timing relevant. Even with this news, CGI is still in the Nancy Pelosi Stock Trade Tracker.

Gannett’s potential upside is not rooted directly in the DOJ/state case, though it is related. On 6/20/23, Gannett filed suit against Google alleging abusive behavior in digital advertising. Notably, the law firm of Kellogg, Hansen decided to take the case entirely on contingency, meaning GCI is not paying a cent while this proceeds (i.e., this is a truly “free” call option). Though estimating the value to GCI is difficult, we believe damages could be in the $1.7bn range and would be subject to automatic trebling ($5.1bn). That’s the reason it is crucial to have your website indexed instantly by Google. From Google’s perspective the money is trivial, given a current cash balance of more than $100bn and $29bn CFO in Q1’24. What is more impactful, for Google, is keeping its company together. Therefore, if they find a path forward with the government, we believe settlement talks with Gannett would occur in short order. Any reasonable figure – say, $500mm – would be material given GCI’s market cap.

AI Copyright Infringement. Artificial Intelligence (“AI”) algorithms require massive amounts of data for training/improvement. Moreover, original content is invaluable to this effort. Lucky for Gannett, creating reams of content is what it has been doing for decades.

Ever since the recent AI explosion, accusations of AI developers using content without permission have abounded. This yields two potentially lucrative angles for Gannett. With a backward-looking lens, GCI can seek damages. As one example, consider the NY Times lawsuit filed in December 2023 against OpenAI and Microsoft for copyright infringement. NYT noted “billions” in damages. Looking forward, GCI can aim to strike licensing deals to capitalize on this new source of content demand. As an example of what this might look like, consider the deal News Corp signed last month (May 2024) with OpenAI for 5 years and a total value of $250mm. Between damages and go-forward deals, GCI could unlock another $500mm+ of value over time from the AI gold rush. That’s why many of the best stock research websites recommend CGI as a strong hold

Putting it together, we see a few shots on goal that cost the company next-to-nothing and could be worth multiples the market cap. It is rare to have something be literally free and yet potentially lucrative.

Alpha Picks Review 2024: Is It Worth The Hype?

July 15, 2024June 15, 2024 by Adam

This Alpha Picks Review explores if this investing group lives up to the hype by outperforming the S&P 500 by nearly 2.5x as of July 2024.

Quick Summary:

Alpha Picks is an investing group run by the in-house quantitative analysts at Seeking Alpha.

Every month, subscribers receive 2 new stock picks backed by the analysts’ research. Since 2022, Alpha Picks has returned 132%, vs. 48%, outperforming the S&P 500 by over 2.5X as of July 2024.

Overall Rating:

Stock Analysis:

Tools & Features:

Ease of Use:

Price:

Best For:

Buy and hold investors

Capital appreciation-oriented investors

PROS

Outperformed S&P 500 2.5X
Reasonably Priced
Community engagement

CONS

Limited track record
Requires familiarity with the Alpha Rating system

Price:

$449/ first year

Features:

2 new stock picks per month

Exclusive investing articles

Nearly real-time trade alerts

Mobile App?

Yes, through the Seeking Alpha App

Current Promotions:

Save $50 off your first year

TRY ALPHA PICKS

What is Alpha Picks?

Alpha Picks is Seeking Alpha’s in-house investing group. As I noted in my Seeking Alpha Review, Seeking Alpha hosts several contributor-based investing groups.

Alpha Picks is a stand-alone investing group that is part of Seeking Alpha’s “Investing Groups.”

Alpha Picks subscribers get 2 monthly stock picks selected by their in-house investment team run by Steven Cress, a former Hedge Fund Manager and senior trader at investment banking powerhouse Morgan Stanley.

Every month, Steve provides an overview of the portfolio via webinar and the portfolio’s holdings.

So far, the portfolio’s performance has been stellar—returning approximately 132% vs. 48% for the S&P 500 as of July 2024

Alpha Picks Returns

Since its inception in 2022, Alpha Picks returned 132% vs. 48% for the S&P 500 over the same period. While Alpha Picks returns are good for the year, a 2-year time horizon barely scratches the surface for an investor.

TRY ALPHA PICKS

Like most portfolios nowadays, it does hold some popular tech stocks like Meta, Google, and SalesForce, but honestly, I’ve never heard of most of the companies in the portfolio.

The portfolio consists of approximately 30 stocks, with individual stock weightings between 2-4% of the total holdings, with a few outliers.

Every month, Steve and his team provide a webinar update to discuss portfolio holdings and market updates like macro themes like inflation and interest rates. I’ve watched the webinars – they are about 30 minutes long, and Steve robotically reads off a prompter.

Not all returns are created equal – let’s dig into the data:

Approximately 24% of the holdings are in the Industrial sector, followed by 19% in Energy, 17% in Information Technology, and 16% in Consumer Discretionary.

Most of the portfolio’s returns are driven by one stock, Super Micro Computer, Inc., which has returned over 234% since its purchase and constitutes nearly 9% of its holdings.

I checked my Morningstar account and saw that Super Micro Computer has a beta of 1.28, meaning the stock is 28% more sensitive than the overall stock market, so it’s logical that the stock has generated solid performance over the past year.

Portfolio Holdings At A Glance

Number of Holdings: 30
Weightings: Individual stocks between 2 – 4% of total holdings
Top 3 Holdings: Super Micro Computer Inc, M/I Homes, Modine Manufacturing
Top 3 Sectors: Industrial, Energy, Information Technology
Weighted Average Portfolio Beta: 1.06

Investment Process

Below I explore Alpha Pick’s buying and selling criteria and how they perform their investment analysis.

Buying Criteria

Alpha Picks uses a data-driven process to identify the most appropriate stock picks from Seeking Alpha Premium’s quant recommendations.

The team selects two ‘Strong Buy’ rated stocks per month. One pick is added on the first trading day of the month, and the other is added on the 15th of the month or the next trading day.

Each “Buy” must meet the following criteria:

‘Strong Buy’ quant rating for at least 75 consecutive days
A U.S. Common Stock (i.e. No ADRs)
Not a REIT
Has a 3-month average market capitalization greater than $500M
Stock price greater than $10
Has not been recommended in the past 1 year

In addition to the above criteria, the team seeks stocks that have a combination of:

Value: Stocks that are considered undervalued compared to their intrinsic worth. These stocks trade for less than their actual or estimated earnings, dividends, sales, etc. Value investors look for bargains, believing the market has undervalued these stocks.
Growth: Stocks with high potential for future revenue and earnings increases. These companies are expected to grow at an above-average rate compared to other stocks in the market. Growth investing involves more risk but also has the potential for higher returns.
Profitability: Profitable companies are generally considered more stable and less risky to invest in. Metrics like return on equity (ROE), net margin, and earnings per share (EPS) are commonly used to measure profitability.
Momentum: Refers to the tendency of a stock to continue moving in the direction of its current trend. Momentum investors capitalize on existing trends, buying stocks that are going up and selling those that are going down.
Revised Forward-Looking Earnings Estimates: This term is a mouthful but super important. It means analysts have updated their earnings predictions for a company’s future. If estimates are revised upward, it’s often a bullish sign, indicating expected growth. On the flip side, downward revisions could signal trouble ahead.

So what the above tells me is that the team applies a combination of quantitative and fundamental analysis to identify investment opportunities.

CHECKOUT ALPHA PICKS

Investment Thesis

Steve and his team then form an investment thesis for new recommendations using the above criteria.

As a subscriber, I could visit Alpha Pick’s homepage and find the investment thesis posted chronologically.

The investment thesis covers basics like an overview of the company, macro trends the company may benefit from, and an explanation of its business model.

Further down in the article, the team describes its buy thesis, explaining its rationale for the stock factor grades.

One cool differentiator I see is an analyst named Zackary replies to subscribers’ questions in the comment box, creating an engaging dialogue.

Selling Criteria

Subscribers are notified via email when the team closes out or reduces a position in the portfolio.

When a stock no longer scores well on fundamentals, valuation, and momentum relative to its sector, or if a stock is rated as ‘Hold’ for more than 180 days, it becomes a ‘Sell’ and is removed from the portfolio.

Alpha Picks sells the entire position in a stock if any of the following occur:

The rating falls to “Sell” or “Strong Sell.”
The company announces an M&A event in which it is the target, or it announces a merger of equals.
The rating falls to “Hold” and remains a “Hold” for 180 consecutive days (as long as the stock is not a ‘winner’ – see below).

Alpha Picks’s “quant research” shows that their portfolio performs better when they let their winners “run.”

A stock is a ‘winner’ when it doubles from the price at which it was purchased. For ‘winners’, if the rating on the stock falls to ‘Hold’ and remains there for 180 consecutive days, the team will only sell the initial investment in the stock. They will keep the remainder of the position in the portfolio.

They only eliminate ‘winners’ if:

Rating falls to “Sell” or “Strong Sell”
Company announces an M&A event in which it is the target
The company announces a merger of equals

Alpha Picks Team

The Alpha Picks team is small. It’s run by stock picker Steven Cress and a junior analyst, Zachary Marx.

Steven Cress

Steven Cress, a former hedge fund manager and senior quantitative trader at Morgan Stanley, makes stock picks.

According to his LinkedIn, it looks like Seeking Alpha purchased the company he founded, and that’s how he became associated with Seeking Alpha.

Zachary Marx, CFA

The Junior, who appears to be the only analyst on the team, is Zachary Marx. According to his LinkedIn, he has about 6 years of quantitative investing experience.

Best For

Alpha Pick’s buy and buy-and-hold approach to investing makes this stock-picking service ideal for long-term investors and those seeking long-term capital appreciation.

Buy and hold investors.
Investors seeking capital appreciation.

Given its broad market exposure, Alpha Picks is not ideal for income-oriented investors, day traders, or single-sector investors.

PROs and CONs Explained

Let’s explore the PROs and CONs of Alpha Picks a little more deeply.

PROs:

Investment Team with Legit Pedigree: Senior Portfolio analyst Steve Cress has serious experience. He founded his own hedge fund and spent many years as a Senior trader at Morgan Stanley.

Market Outperformance: The portfolio has outperformed the market 2.5X since inception. I calculated a weighted average beta of just 1.06, making its performance even more intriguing.

CONs

Limited Track Record: Alpha Picks has only been around Since July 2022, so while their success is impressive, what really matters is providing investors with year-over-year returns.

Requires familiarity with Rating Factors: Alpha Picks assumes you know the company’s rating factors and methodology, so if you aren’t, you’ll need to do some research after signing up.

Price and Value

Alpha Picks is $449 for the first year ($50 savings) off of the full price of $499.

For $449/year you get access to:

2 new stock picks per month/24 picks per year
Monthly Portfolio Review Videos
Complete Investment Thesis for Stock Picks

CHECKOUT ALPHA PICKS

Best Alternatives

If you don’t fancy Alpha Picks by Seeking Alpha, don’t fret. There are several excellent alternatives.

1. Motley Fool Stock Advisor

Why it Stands Out: The Motley Fool Stock Advisor shines with its specific stock recommendations, backed by detailed analysis and a strong track record of performance. This valuable feature aids investors of all levels to identify potential investment opportunities in the stock market. While Alpha Picks has had tremendous success, Motley Fool Stock Advisor has been around for many years, making spectacular bets on the largest tech stocks.
Returns: +462% since inception
Best For: Both novice and experienced investors who appreciate guidance on stock picks and investment strategies
Pros: Provides specific stock recommendations, offers in-depth reports, and a solid track record of performance.
Cons: Requires a subscription; not all recommended stocks may suit every investor.
Price: $79/year

Check Out Motley Fool

or read our complete Motley Fool Review.

2. Action Alerts Plus

Why it Stands Out: Action Alerts PLUS stands out for its transparency, giving subscribers full access to its portfolio and real-time trade alerts. The service prioritizes education, explaining the reasoning behind each decision to help subscribers understand investment strategies. It provides actionable investment advice and detailed recommendations on what to buy, at what price, and when to sell. Subscribers gain from monthly members-only calls, fostering learning and direct communication with the team. Lastly, it offers comprehensive market analyses and weekly roundups of market activity, changes in the portfolio, and future outlooks, keeping subscribers well-informed and prepared.
Best For: Investors seeking real-time alerts on trades and insights into market trends.
Pros: Strong Emphasis on Investor Education, 14 Day Free Trial, Easy-to-use Interface
Cons: Oriented towards short-term trading, Requires Active Management
Price: Starts at $16.67/mo
Current Promotions: None listed

or read our complete Action Alerts Plus Review.

Is Alpha Picks Worth it?

Alpha Pick’s impressive performance over the past year certainly presents a tempting opportunity for many investors.

However, considering the group has only been in action for a little over a year, I would tread cautiously if you think you will strike it rich with this investing group.

I am more of an index fund type of guy, so I even felt a little strange when I signed up for Alpha Picks, but I thought it could help expand my view.

For $40 a month, you’re not breaking the bank for a subscription; at worst, you’ll hopefully learn something new about investing.

TRY ALPHA PICKS

Frequently Asked Questions

What’s the Difference Between Seeking Alpha Premium and Picks?

Alpha Picks is an investing group. If you sign up just for the investing group, you don’t have access to all other contributor-based articles. Meanwhile, if you have a Seeking Alpha Premium subscription, you have access to all articles and tools but not the investing group.

If you sign up for a Seeking Alpha Pro subscription, you have access to the Alpha Picks Investing Group and all the articles and tools Seeking Alpha has to offer.

Our Review Methodology

Investing in the right financial products is crucial for achieving your financial goals. That’s why our review methodology is designed to give you a comprehensive understanding of various investing platforms and tools. Here’s a breakdown of what we focus on:

Tools and Features

We dig deep into the suite of tools that each platform offers. Whether it’s automated investment features, tax optimization, or specialized charting tools, we evaluate how these features contribute to smarter investing decisions. We ask questions like:

What is its main offering, and how does it compare to its peers?
How effective are the risk assessment tools?
Are there any value-added services like educational content?

Price and Value

Price matters, especially when it comes to investing, where every penny counts. We analyze:

Subscription fees
Hidden Charges
Price compared to the overall value received

We’ll let you know if the platform gives you the most bang for your buck.

Ease of Use

User experience can make or break an investment platform. We assess:

Interface Design – Is it intuitive and easy to use?
Mobile app availability and functionality
Customer Support – where applicable.

Nobody wants to navigate a clunky interface when dealing with their hard-earned money.

Stock Breakdown

Good investing is rooted in great research. We examine:

The quality of stock analysis tools
Returns on an absolute and comparative basis
Availability of real-time data
Depth of research reports

We check if the platform provides actionable insights to make informed decisions.

How We Do It

Hands-On Testing: I signed up for Alpha Picks to actually provide real insight. This is how I give a unique perspective. We’re unlike some other sites where they simply rehash marketing materials.
Customer Reviews: What are other users saying? We look at reviews and customer feedback to gauge public opinion.
Comparative Analysis: Finally, we compare each platform against competitors in terms of features, pricing, and user experience.

We take a comprehensive approach so that you don’t have to.

By sticking to this methodology, we aim to guide you toward investment tools that align with your financial objectives. Happy investing!

Why You Should Trust Us

Our reviews are unbiased and data-driven. While we may receive a commission if you purchase a product through our link, it does not impact our editorial integrity. In addition, all articles are independently reviewed by individuals with extensive experience in investing and personal finance. Lastly, for further validation, we often refer to authoritative financial sources like Morningstar, The Wall Street Journal, and Kiplingers, to name a few.

5 Best Stock Picking Services of 2024

July 15, 2024June 13, 2024 by Adam Koprucki

I tried some of the most popular stock-picking services – here’s what I discovered.

5 Best Stock Picking Services

Best Overall: Alpha Picks by Seeking Alpha
Best for Buy and Hold: Motley Fool Stock Advisor
Best for Momentum Trading: CNBC Investing Club
Best for Swing Trading: Mindful Trader
Best for Short Term Trading: Action Alerts Plus

1. Best Overall: Alpha Picks by Seeking Alpha

Best For: Buy and Hold investors
Overview: Alpha Picks is Seeking Alpha’s in-house investing group. Alpha Picks subscribers get 2 monthly stock picks selected by their in-house investment team run by Steven Cress, a former Hedge Fund manager.
Returns: Alpha Picks has returned 124%, vs. 38%, outperforming the S&P 500 almost 3X since inception in 2022(returns as of July 2024).
Price: $449/year
Current Promotions: Save $50. ($499 full price)
Pros: Stock market outperformance, investing community engagement
Cons: Limited track record, requires familiarity with the Seeking Alpha Rating system, No skin in the game

Note: Alpha Picks is a stand-alone investing service from Seeking Alpha. You do not get a Seeking Alpha subscription with an Alpha Picks subscription – they are two different services.

TRY ALPHA PICKS

When I signed up for Alpha Picks, I was a bit skeptical, given its limited track record. However, the service has continued outperforming the market, so I can’t complain.

or read our complete Alpha Picks Review.

2. Best for Buy and Hold: Motley Fool Stock Advisor

Best For: Long-term investors
Overview: Stock Advisor offers monthly stock picks from the company’s co-founders, Tom and David Gardner, who each manage separate teams of analysts. The service recommends stocks from established companies with proven track records and strong growth potential. Stock Advisor also advises when to sell, a feature differentiating it from many other stock-picking services.
Pros: 2 stock picks per month, High long-term returns, stock research reports
Cons: Constant upselling, limited portfolio analysis
Returns: +639% since its inception in 2002
Price: $99/year
Current Promotions: 50% Off Full Price ($199/year)

TRY MOTLEY FOOL

At $99/year, it’s hard to beat the pricing. I’ve used Motley Fool for a while, and while none of their recent investments have been home runs, it’s a good subscription to keep in your investing stack.

TRY MOTLEY FOOL

or read our complete Motley Fool Review.

3. Best for Momentum-Oriented Investors: CNBC Investing Club with Jim Cramer

Best For: Active investors, momentum-oriented investors
Overview: The CNBC Investing Club is a subscription-based investing service that provides stock picks, portfolio analysis, and market news from Jim Cramer and his team. Jim created the Investing Club to help all investors build long-term wealth in the stock market, and the CNBC Investing Club is now the official home of Jim Cramer’s Charitable Trust. The investing club is the only place to view the charitable Trust’s stock picks. It’s not available on Mad Money or any other investing platform related to CNBC.
Returns: 17.06% over the past 5 years (Since 2019).
Price: $49.99/mo
Current Promotions: 20% off Yearly Subscription

The investing club’s performance is on par with the S&P500’s returns over the same period. While this isn’t necessarily bad, I wouldn’t expect to see any unique picks.

or read our complete CNBC Investing Club Review.

4. Best for Swing Trading: Mindful Trader

Best For: Swing traders
Overview: Mindful Trader is a stock and option-picking alert service focusing on swing trading. Swing trading is a trading style that generates profits from small to medium price movement over a short period – typically a week or less. Mindful Trader was built on the premise that using rigorously back-tested statistical strategies can generate wealth through stocks, options, and futures trading. The platform was founded and built in 2020 by Eric Ferguson, who has over 20 years of stock trading experience. He spent over 4 years and $200,000 of his own money developing the statistical tools used by Mindful Trader. He has a degree in Economics from Stanford University – his pedigree is legit.
Returns: Varies depending on investment strategy
Price: $49.99/month, no long-term commitment

I used Mindful Trader for a very short time frame and found the constant trading somewhat difficult to follow and the website cumbersome. I’m more of a buy-and-hold investor, not a swing trader.

Read our complete Mindful Trader Review.

5. Best for Short Term Trading: Action Alerts Plus

Best For: Short-term traders
Overview: Action Alerts PLUS is a subscription-based stock-picking service offered by TheStreet.com. This service was founded by financial analyst and commentator Jim Cramer, known for his work on CNBC’s “Mad Money,” along with a team of research analysts.
Price: $12.50 – $29.99/mo

Read our complete Action Alerts Plus Review.

What are Stock Picking Services?

Stock picking services are platforms that offer recommendations on which stocks to buy and sell. They’re designed for investors who may not have the time or expertise to conduct thorough stock research on their own.

What to Look for in Stock Picking Services

When evaluating stock-picking services, it’s important to consider several key factors to ensure you choose a service that aligns with your investment goals and style.

Track Record: Check the service’s historical performance. A consistent record of successful stock picks is a good indicator of reliability.
Investment Philosophy: Ensure their approach matches your investment strategy, whether it’s long-term growth, value investing, or short-term trading.
Transparency: A reputable service should be transparent about their successes and failures, providing detailed analysis to support their picks.
Cost vs. Value: Assess the subscription cost relative to the value you receive. High fees do not always equate to high returns.
Quality of Analysis: Look for services that provide in-depth research and analysis rather than just stock tips. Understanding the ‘why’ behind a pick is crucial.
Diversity of Picks: A good service should offer a range of picks across various sectors and industries to help diversify your portfolio.
Educational Resources: Especially beneficial for new investors, educational content can enhance your understanding of the market.
Frequency of Picks: Ensure the frequency of stock recommendations aligns with your desired level of market activity.

Even the best stock picking services don’t guarantee profits, and investing always involves risk. It’s important to use these services as one of many tools in your investment strategy and not rely solely on them for decision-making.

Conducting your own research and due diligence is always crucial in investing.

Stock Picking Strategies

Value Investing: This strategy involves looking for undervalued stocks that are priced below their intrinsic value. Investors using this strategy believe the market will eventually recognize and correct the undervaluation.
Growth Investing: Growth investors seek companies with strong potential for future growth. These stocks may not pay dividends but are expected to grow at an above-average rate compared to other companies in the market.
Income Investing: Focused on generating steady income, this strategy involves buying stocks with high dividend yields. It’s popular among retirees and those seeking regular income.
Momentum Investing: Momentum investors look for stocks that are experiencing an upward price trend. They buy these stocks and hold them until the trend begins to reverse.
Index Investing: While not strictly stock picking, index investing involves buying index funds that track a market index, offering diversification and reflecting the market’s performance.
Technical Analysis: This strategy uses statistical trends gathered from trading activity, such as price movement and volume

Benefits of Stock Picking Services

Stock-picking services offer several benefits, particularly for individual investors who may not have the time or resources to conduct extensive market research.

Expert Analysis: Stockpicking services often have experienced analysts who provide expert insights, making it easier for investors to make informed decisions.
Time-Saving: Doing thorough stock research can be time-consuming. These services save time by providing ready-to-use investment suggestions.
Educational Resources: Many services offer educational content that can help investors learn more about the stock market, investment strategies, and financial analysis.
Diversification: Good stock picking services offer recommendations across various sectors and industries, helping investors diversify their portfolios.
Access to Specialized Knowledge: These services often have access to sophisticated tools and data that individual investors may not have, providing an edge in the market.
Risk Management: Some services provide guidance on managing risk, including how to diversify and when to exit positions.
Performance Tracking: Many stock picking services offer tools to track the performance of their recommendations, making it easier for investors to evaluate their investment choices.
Community and Support: Some services create a community of investors where ideas and strategies can be shared, offering support and a sense of belonging.

Our Review Methodology

Tools and Features

What is its main offering, and how does it compare to its peers?
How effective are the risk assessment tools?
Are there any value-added services like educational content?

Price and Value

Price matters, especially when it comes to investing, where every penny counts. We analyze:

Subscription fees
Hidden Charges
Price compared to the overall value received

We’ll let you know if the platform gives you the most bang for your buck.

Ease of Use

User experience can make or break an investment platform. We assess:

Interface Design – Is it intuitive and easy to use?
Mobile app availability and functionality
Customer Support – where applicable.

Nobody wants to navigate a clunky interface when dealing with their hard-earned money.

Stock Breakdown

Good investing is rooted in great research. We examine:

The quality of stock analysis tools
Returns on an absolute and comparative basis
Availability of real-time data
Depth of research

We check if the platform provides actionable insights to make informed decisions.

How We Do It

Hands-On Testing: I signed up for Mindful Trader to provide real insight. This is how I give my unique perspective. We’re unlike some other sites, which simply rehash marketing materials.
Customer Reviews: What are other users saying? We look at reviews and customer feedback to gauge public opinion.
Comparative Analysis: Finally, we compare each platform against competitors regarding features, pricing, and user experience.

5 Income Generating Assets You Should Own To Grow Your Wealth

June 3, 2024 by Adam Koprucki

Unlock your financial future with income-generating assets that work for you, even while you sleep.

Investing in income-generating assets can help you build wealth over time. These assets provide consistent income while also potentially appreciating in value.

Below we explore 5 Income Generating Assets you may want to consider.

What Are Income Generating Assets?

Income-generating assets are investments that produce a steady stream of income, typically through interest, dividends, or rental payments. These include stocks that pay dividends, bonds, REITS, music royalties, and real estate.

As the name implies, income-generating assets focus on generating cash flow as opposed to capital appreciation. While capital appreciation can also occur, it’s not the primary objective of investing in these types of investments.

1. Dividend Stocks

Dividend stocks are shares of companies that regularly distribute a portion of their earnings to shareholders as dividends.

These stocks are a popular type of income-generating asset because they provide a steady stream of income, typically on a quarterly basis.

Investors favor dividend stocks not only for the regular income they provide but also for their potential for capital appreciation. Companies with a history of consistent and growing dividends are often well-established and financially stable, making dividend stocks a key component in many income-focused investment portfolios.

PROS

Steady Income Stream: Dividend stocks provide regular income, making them ideal for passive income seekers.
Lower Volatility: Companies that pay dividends are often more stable and less volatile than growth stocks.
Compounding Returns: Reinvesting dividends can lead to significant compound growth over time.

CONS

Dividend Cuts: Companies can reduce or eliminate dividends, impacting income and potentially the stock price.
Market Risks: Dividend stocks are still subject to market risks and can lose value during economic downturns.

2. Bonds

Bonds are a type of income-generating asset where investors lend money to an entity (such as a corporation, municipality, or government) in exchange for periodic interest payments and the return of the bond’s face value at maturity.

They are considered relatively safe investments, particularly government and high-quality corporate bonds, making them attractive for conservative investors seeking stable income.

PROS

Stable Income: Bonds provide regular and predictable interest payments
Lower Risk: Generally less volatile than stocks, making them a safer investment option
Diversification: Adding bonds to a portfolio can help reduce overall risk

CONS

Lower Returns: Typically offer lower returns compared to stocks, particularly for high-quality bonds.
Interest Rate Risk: Bond prices can fall if interest rates rise, as newer bonds may offer higher yields.

3. REITS

REITs must distribute at least 90% of their taxable income to shareholders as dividends making them attractive to income-focused investors. The income-generating properties and rental income streams provide relatively stable and predictable cash flow. While primarily income-focused, REITs also have the potential for capital appreciation, adding another layer of returns.

You can invest in publicly-traded REITs like you would a traditional equity. You can also invest in non-traded REITs through a real estate crowdfunding platform like Fundrise or Groundfloor.

REITs can be a valuable addition to an income-generating investment strategy. They offer high dividend yields, potential for diversification, and liquidity. However, like any investment, they come with risks that need to be carefully considered.

PROS:

Diversification: REITs provide exposure to real estate, which can diversify an investment portfolio and reduce overall risk.
Liquidity: Unlike direct real estate investments, REITs are traded on major stock exchanges, making them easy to buy and sell.
Professional Management: Investors benefit from the expertise of professional management teams who handle the property management and acquisition strategies.

CONS

Lack of control. As an investor in a REIT, you have limited control over the specific properties in the portfolio and how they are managed.
Interest rate sensitivity. REITs may be more sensitive to changes in interest rates, as higher interest rates can make it more expensive for REITs to borrow money and may reduce the value of existing fixed-income investments held by the REIT.
Dividend risk. REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends, but there is no guarantee that dividends will be paid or that they will be sustained at current levels.

You might also be interested in: Ultimate Beginner’s Guide to REIT Investing.

4. Music Royalties

Music royalties are a type of alternative investment where payments are made to music creators and rights holders for their music. They are a form of compensation for using intellectual property, in this case, the music itself.

Music royalties can provide a reliable and steady income stream for investors, with returns ranging from a few percentage points to double-digit returns.

The returns from investing in music royalties can vary widely and depend on several factors, including:

Popularity of the music
Type of royalty
Length of the royalty agreement

For example, mechanical royalties from physical and digital music sales may offer a fixed rate of return of around 9.1 cents per song per copy sold. In contrast, performance royalties may offer a variable rate based on the number of plays or performances.

In some cases, investors may be able to negotiate a higher rate of return by acquiring a music catalog or song that is particularly popular or has a proven track record of generating royalties.

PROS

Steady Income Stream: Music royalties can provide a steady income stream as long as the music continues to be used and generate revenue. This makes them an attractive investment for investors seeking consistent returns.
Low Correlation with Other Asset Classes: Music royalties have a low correlation with traditional asset classes such as stocks and bonds, making them a valuable diversification tool for an investor’s portfolio.
Predictable Income: Royalties from well-known songs with a proven track record of revenue generation can provide predictable income and a measure of security for investors.

CONS

Lack of Transparency: The music industry can lack transparency, making it difficult for investors to determine the value of music royalties.
Difficulty in Valuing Music Royalties: Music royalties have no standardized valuation methods unlike other assets, such as stocks or real estate. This can make determining their value for capital gains or tax purposes difficult.

5. Real Estate Crowdfunding

Real estate crowdfunding is when investors pool their money together through a crowdfunding platform to fund some or all of a real estate project.

The types of crowdfunded real estate projects can vary from individual properties to large multi-family apartment complexes and retail spaces.

Crowdfunded deals generally have a long investment horizon of at least 3 years. However, some platforms specialize in deals that can be as short as 6 months.

Crowdfunded real estate investments are private investments. They do not trade on an exchange like the NYSE. Instead, the investments are structured as a private REIT, an LLC, or a debt note, like a Limited Recourse Obligation.

PROS

No Property Management: When you invest in real estate crowdfunding, you get the benefits of investing in real estate without the stress of property maintenance, tenant management, and insurance, to name a few.
Non-Correlated Returns to the Stock Market: Private real estate has a correlation of 0.14 and -0.12 with publicly traded stocks and bonds, as noted in a TIAA study on private real estate investing.

CONS

No Independent or Public Source of Performance Data: Because real estate crowdfunding offerings are private investments, they do not provide the same level of information as you commonly see for publicly traded REITs.
High Fees: Private real estate investments tend to have higher fees compared publicly traded REITs. Most crowdfunding platforms have a 1% asset management fee, while the average publicly-traded REIT ETF has an expense ratio of 0.41%. In comparison, REIT mutual funds have an average expense ratio of 0.85%, according to the Motley Fool.

How To Buy Income Generating Assets

There are several avenues available to you if you are interested in buying income-generating assets.

Dividend Stocks and Bonds: You can use traditional brokerages like Charles Schwab and Fidelity
REITS: Publicly traded REITs can also be purchased through traditional brokerages
Music Royalties: Royalty Exchange
Real Estate Crowdfunding: Groundfloor or Fundrise

Index Funds: Pros and Cons Every Investor Needs to Know

May 28, 2024May 28, 2024 by Adam Koprucki

Index funds have soared in popularity over the past 30 years, making them one of household investors’ most popular investment choices.

The index fund recently celebrated its 30th birthday.

Over the past 30 years, index funds have soared in popularity among investors largely due to their implicit diversification, low fees, and passive investing strategy.

But with all those benefits, there are still drawbacks, such as no opportunity for customization, and limited potential for outperformance.

Either way, if you want to get started in stocks, understanding the advantages and disadvantages of index funds is crucial.

This article will examine the PROS and CONS of Index Funds so you can make the most educated investing decisions.

Let’s get into it.

Pros of Index Funds

Index funds is that they offer a cost-effective, diverse, and low-maintenance investment strategy for long-term investors. Key benefits include low fees, broad diversification, tax efficiency, and consistent returns that closely track the performance of the market indices they represent.

Additionally, index funds provide a passive investment approach, which may outperform actively managed funds over time, with less risk and lower costs.

You may also be interested in: SPY vs. VOO: What’s The Difference between these two index funds?

Low-cost investment

According to a recent Wall Street Journal Article, actively managed funds charge an average fee of 0.70%, versus 0.16% for Passively managed funds.

Index funds generally have lower expense ratios than actively managed funds because they follow a passive investment strategy. For example, two popular index funds, VOO and SPY, which track the performance of the S&P500, have expense ratios of just 0.03% and 0.09%, respectively.

This means they aim to replicate the performance of a specific index through passive management, requiring less frequent trading and lower management and transaction costs.

Therefore, investors can keep more of their returns over time.

An article from Index Fund Giant Vanguard highlights the impact of fees:

“Imagine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you’d end up with about $430,000.
If, on the other hand, you paid 2% a year in costs, after 25 years you’d only have about $260,000.
That’s right: The 2% you paid every year would wipe out almost 40% of your final account value. 2% doesn’t sound so small anymore, does it?”
Source: Vanguard Group

Diversification

Index funds offer broad exposure to various assets, sectors, and regions within a single investment vehicle. By investing in an index fund, investors can effectively diversify their portfolios, spreading risk across multiple holdings and reducing the impact of poor performance by any single asset.

Easy Access and Simplicity

Index funds are easy to understand and access. Investors don’t need to research individual stocks or bonds and can instead focus on selecting the right index fund to suit their investment goals. Investors can access index funds through a discount broker like eToro.

This makes index funds attractive for beginner investors or those who prefer a passive investing strategy.

Most index funds trade as exchange-traded funds, making them widely available through brokerages and fund providers.

I started investing in index funds because I realized I knew little about investing, and it was the best decision I’ve ever made.

Performance

Numerous studies show that index funds often outperform actively managed funds over the long term, largely due to the lower fees associated with passive management.

Index funds can deliver consistent returns by tracking the market without the risks of poor management decisions or underperformance by individual securities.

Cons of Index Funds

While index funds have several advantages, investors should also be aware of their potential drawbacks.

Let’s look below:

Limited Potential for Outperformance

Index funds are passively managed, meaning they follow the composition of the underlying index. They do not employ active management strategies, such as stock picking or market timing, which means there is limited opportunity for outperformance.

Meanwhile, actively managed funds can dynamically select individual stocks and sectors, providing an opportunity for outperformance.

Let’s look below:

Concentration risk

Market capitalization-weighted index funds can sometimes be heavily weighted toward certain sectors or companies, leading to overconcentration in specific market areas.

For example, the Financial Times highlighted that just 5 companies, the five largest companies in the S&P 500 Index (Apple, Microsoft, Amazon, Facebook, and Alphabet), made up approximately 22% of the index’s market capitalization. This concentration level can expose investors to additional risks if these large companies underperform or experience severe declines.

Lack of customization

Lack of customization is a drawback of index funds because investors have limited control over the specific holdings within the fund.

This means that investors cannot tailor the portfolio to their individual preferences, values, or financial goals.

For example:

Investors interested in aligning their investments with their values, such as environmental, social, and governance (ESG) criteria or socially responsible investing (SRI) principles, may find it challenging to do so with a traditional index fund.

This is because index funds are designed to track a specific market index and do not allow for customization based on ESG or SRI considerations.

Tax Management: Index funds do not offer the same level of tax management as separately managed accounts or individual stock portfolios. For example, investors cannot sell specific holdings within an index fund to realize losses for tax purposes (tax-loss harvesting). This lack of customization may result in less tax-efficient outcomes for some investors.

Limited Risk Management

Since index funds are passively managed and aim to replicate the performance of the underlying index, they do not have the flexibility to dynamically hedge their positions response to market volatility, or adjust their holdings based on an investor’s risk tolerance or investing objectives.

Meanwhile, actively managed funds can reposition their portfolios to mitigate risk during periods of heightened volatility, and an individually selected portfolio can be adjusted to meet an investor’s investing objectives and risk tolerance.

Overweighting in High-Risk Sectors

Market capitalization-weighted index funds can be disproportionately exposed to high-risk sectors during periods of market volatility. This is because they allocate more weight to companies with larger market capitalizations, which can lead to a concentration of risk when these companies are part of volatile sectors.

You are Less likely to Learn About Investing

Index funds have a set-it-and-forget approach. When I started investing in Index Funds, I bought VOO and called it a day. I didn’t learn about EPS or read-up on earnings releases. Sure, you can still do that, but you are less inclined when you have a basket of individual securities.

It sounds odd, but only when I started investing in individual stocks did I really understand what it means to become an investor.

The Bottom Line

Index funds provide a low-cost, diversified, and easily managed investment option, making them an attractive choice for long-term investors. However, their passive management may result in limited potential for outperformance and a lack of flexibility in addressing market changes.

The Research

I want to break down how I came up with the pros and cons of index funds for my recent article. Let me give you a behind-the-scenes look at my methodology.

Personal Experience

First and foremost, I’ve been dabbling in index funds for a while now. These aren’t just numbers and concepts; they’re part of my actual portfolio. Trust me, I’ve felt the rush when the market’s up and the cringe when it takes a hit.

Discussions with Peers

I’ve also had plenty of debates over coffee with my friends and colleagues who are into investing. Some swear by the “set it and forget it” ease of index funds, while others argue that individual stocks or actively managed funds offer more thrills—and maybe higher returns.

Reputable Sources

For the nitty-gritty details, I dove into credible finance journals, studies, and expert interviews. Websites like Investopedia and Morningstar were goldmines for information.

Market Analysis

Real-time market analysis from platforms like Yahoo Finance and Bloomberg provided actionable insights. I checked out the performance trends of popular index funds to see how they really hold up in different market conditions.

Social Proof

I even scoured Reddit forums and Twitter threads. Believe it or not, there’s a lot of wisdom (and cautionary tales) out there in the social media world. People are willing to share their hands-on experiences, for better or worse.

Fact-Checking

Finally, every piece of information underwent a rigorous fact-checking process. If something seemed too good to be true, I dug deeper.

By combining all these elements, I aimed to create a well-rounded view of the pros and cons of index funds. So, when you read my post, know that it’s backed by research, real-world experience, and a good dose of skepticism.

Catch you in the next post!

How to Invest in Gold: 4 Ways to Get Started

May 27, 2024 by Adam Koprucki

Investing in gold can be a great way to diversify your portfolio and potentially hedge against inflation. Here’s what you need to know to get started.

Due to its scarcity, Gold is often seen as a safe haven investment during times of inflation and economic uncertainty.

Investing in commodities like gold is often a popular move for many investors.

Here’s what you need to know about how to invest in gold.

4 Ways to Invest in Gold:

Gold Bullion
Gold ETFs and Mutual Funds
Gold Futures and Options
Gold Mining Stocks

1. Gold Bullion

Buying gold bullion is the most tangible way to invest in gold. Many stock market skeptics buy gold bullion because it’s a physical asset you can hold.

PROS: Tangible asset, intrinsic value

CONs: Storage costs, security risks, no dividends

Gold Bars and Coins: Purchase from reputable dealers. Ensure purity and authenticity
Jewelry: Not the best investment due to high markup and less liquidity

Price of Gold over last 30 years — Price of Gold (1994 – 2004). Source: Macrotrends.net

2. Gold ETFs and Mutual Funds

Gold ETFs and Mutual Funds are probably the easiest way to directly invest in gold without the hassle of physical ownership.

You can invest in ETFs that track the price of physical gold, such as SPDR Gold Shares or securities of gold mining companies.

PROS: Easy to trade, lower costs than physical gold.

CONS: Management fees, not tangible.

Gold ETFs: Track the price of gold. Examples include SPDR Gold Shares (GLD) and iShares Gold Trust (IAU).
Gold Mutual Funds: Invest in gold mining companies. Examples include Fidelity Select Gold Portfolio (FSAGX).

3. Gold Futures and Options

Trading gold futures and options is an advanced method of taking a positional view of the price of gold.

Trading Gold futures and options should only be done by advanced traders. It is best for beginner investors to avoid trading gold futures and options.

PROS: High leverage(with futures), potential for significant gains

CONS: High risk, requires expertise

Most gold futures and options trading is done by companies who use gold in their manufacturing process and therefore trade options and futures to lock in their production costs.

4. Gold Mining Stocks

Gold mining stocks are another way to invest in gold. However, they don’t necessarily directly correlate to the price of spot gold and can be influenced by other economic factors like expectation reports and changes in laws in which the country is located, production costs, and U.S. macroeconomic factors (like inflation) can dramatically impact the price of gold mining stocks.

2 Categories of Gold Mining Stocks: Junior and Major

Junior mines are newer mines without often unproven mining claims. Meanwhile, major mines are established mines with production and infrastructure in place. Both types of gold mining stocks can be publicly traded, and you can use a stock screener like Finviz to help you identify potential investment opportunities.

Explore whether investing in popular gold mining companies like Barrick Gold Corporation (GOLD) or Newmont Corporation (NEM) is right for you.

Popular Gold Mining Stocks

Newmont (NEM)
Barrick Gold (GOLD)
Franco-Nevada (FNV)
Kinross Gold (KGC)
Alamos Gold (AGI)

PROS: Potential for higher returns, dividends.

CONS: Higher risk, company-specific factors.

Tips for Researching Gold

Like stock research, understanding what catalysts may drive the price of gold up or down involves thorough research.

Some factors to consider when researching gold include:

U.S. macroeconomic factors (inflation, decline in value of the dollar)
Production Costs
Changes in laws in the country where the mine is located

Bottom Line

Investing in gold can be a valuable addition to a diversified portfolio, offering a hedge against inflation and economic uncertainty. However, it’s essential to balance gold with other assets due to its volatility and limited income potential.

How to Research Penny Stocks

July 15, 2024May 24, 2024 by Adam Koprucki

Penny stocks carry significant risk, but the potential upside can be substantial for savvy investors. Here’s what you need to know about researching penny stocks.

Penny stocks are shares of small companies that trade for less than $5 per share. These micro securities are often found on over-the-counter (OTC) markets rather than major stock exchanges. Penny stocks are notorious for their price volatility and risk, which makes them a unique investment opportunity.

Quick Summary

Use a screener: To identify new penny stock opportunities.
Analyze Market News and Trends: Since penny stocks are highly sensitive to news, identifying positive or negative news can help predict price movements and trading opportunities.
Perform Technical Analysis: Use indicators that can adjust to the quickly changing and irregular nature of penny stocks and provide precise and timely signals. Some popular and useful technical indicators for penny stocks include moving averages (MA), relative strength index (RSI), and volume.
Have a Scanner running during market hours: This will help you identify potential momentum plays.

How to Research Penny Stocks

Knowing how to research penny stocks is the key to making winning stock picks.

Penny stocks are shares of small companies that usually trade under a dollar but less than $5 per share. Because of their low share price, penny stocks often trade over the counter instead of on major stock exchanges.

If you don’t have much money to trade in the stock market, penny stocks can be incredibly tempting.

Buying 10,000 shares of a stock at $0.05 is more appealing than buying a few shares of Apple or Tesla. Penny stock investors tend to buy these low-priced securities, hoping they’ll increase in value 10X.

1. Use a Screener to Identify New Penny Stocks

Because penny stocks often have limited news coverage, finding new investment opportunities can be challenging. It’s worth using a penny stock screener to help you identify potential investment opportunities.

Company Background Check: Describe how to investigate the company’s history, business model, and management team.
Financial Statements: Explain the importance of reviewing financial statements (income statement, balance sheet, cash flow statement).

2. Analyze Market News and Trends

Market News and Trends: Because penny stocks are highly sensitive to news, identifying positive or negative news can help predict price movements and trading opportunities.

3. Perform Technical Analysis

Use indicators that can adjust to the quickly changing and irregular nature of penny stocks and provide precise and timely signals. Some popular and useful technical indicators for penny stocks include moving averages (MA), relative strength index (RSI), and volume.

4. Have the Scanner Running During Market Hours to Hunt for Momentum Plays

Real-Time Scanning: Using stock scanners during market hours helps identify stocks with unusual volume, price movements, or other momentum indicators.
Momentum Plays: are stocks rapidly gaining in price and volume. Identifying them in real time can provide opportunities for profitable short-term trades.

What To Watch Out For When Researching Penny Stocks

1. Lack of Information

Limited Financial Data: Many penny stocks have incomplete or outdated financial statements.
Unverified Claims: Be wary of companies making grandiose claims without evidence.

2. Pump-and-Dump Schemes

Sudden Price Surges: Unexplained, rapid increases in stock prices followed by sharp declines can indicate manipulation.
Aggressive Promotion: Watch out for stocks heavily promoted through emails, social media, or forums.

3. Low Trading Volume

Liquidity Issues: Stocks with low trading volume can be difficult to buy or sell without significantly impacting the price.
Price Manipulation: Low liquidity stocks are easier to manipulate.

4. Insider Ownership

High Insider Holdings: Companies where insiders hold a large percentage of shares can manipulate the stock price.
Frequent Insider Transactions: Frequent buying or selling by insiders can indicate potential issues.

5. Unrealistic Financial Projections

Overly Optimistic Forecasts: Be skeptical of companies projecting unusually high growth rates.
Lack of Revenue: Companies with minimal or no revenue making high-profit claims.

Pros and Cons of Penny Stocks

There are several advantages and disadvantages investors need to be aware of before investing in penny stocks.

PROS

Affordable entry point
High growth potential
Market inefficiencies due to limited coverage

CONS

Shares can be subject to market manipulation
High risk and volatility
Lack of reporting information

Penny Stocks vs. Traditional Stocks

Lack of Public Information: Microcap stocks differ significantly from larger stocks due to the scarcity of publicly available information. While large public companies regularly file reports with the SEC and are widely covered by professional analysts, information on microcap companies is often hard to find. This lack of transparency makes microcap stocks more susceptible to investment fraud and less likely to have market prices based on comprehensive information.

No Minimum Listing Standards: Stocks traded on major exchanges must meet specific listing standards, such as minimum net assets and shareholder numbers. In contrast, companies on the OTCBB or OTC Link generally do not have to meet these standards, except for those in the OTCQX and OTCQB marketplaces, which have some requirements.

Risk: Microcap stocks are among the riskiest investments. Many microcap companies are new with no proven track record, and some lack assets, operations, or revenues. Additionally, the low trading volumes of microcap stocks can lead to significant price volatility with even small trades.

The Bottom Line

While there is the potential to make significant money investing in penny stocks, they come with considerably more volatility and price risk than investing in established blue-chip stocks. Before diving in, be sure to perform appropriate stock research before diving headfirst into the world of penny stock investing.