Do you fantasize about finding the next $2 stock that goes straight to $200?
If so, you should be listening to Frank Curzio.
Now, Frank’s on to a new adventure in his life, running the brand-new Penny Stock Specialist newsletter for Stansberry & Associates. Frank I sat down (virtually) to discuss everything from penny stocks to Jim Cramer to his new podcast. Here’s the interview:
So Frank, what’s life like with Stansberry & Associates?
S&A is one of the largest financial publishers in the world. And while I’ve been writing newsletters for my whole career, I feel like we’re taking everything to a whole new level. Everyone at the company is working towards the same goal – to make each newsletter the absolute best in its class.
We know that your father was an influential name on Wall Street – how did he influence your investing style?
My dad was a pure value guy. So I learned to analyze a balance sheet and income statement at 15. Learning how much cash flow a business generates compared to its debt obligations can save you a lot of money when it comes to investing in under $10 stocks.
He also taught me about the real Wall Street, where most people are out for themselves. It’s a lesson I pass on to every young investor with dreams on becoming the next Wall Street millionaire.
Frank, we talked about this subject quite a bit back in the old days at TheStreet.com. But I have to ask: are most stocks under $10 crap?
They all have great stories… like the micro-cap that’s drilling right next to ExxonMobil (XOM) or the biotech with the blockbuster drug in Phase III. But when you break down these companies fundamentally, most are crap.
I use strict guidelines when recommending low priced stocks. Most important, I use stop losses. That will keep you in the game longer and will prevent you from having a complete wipeout.
Why are people so obsessed with penny stocks?
Everyone wants to become a millionaire overnight. Investing in Apple (AAPL) at $200 or Google (GOOG) at $500 wont make you 500%. But buying Diedrich Coffee (DDRX) at 30 cents and selling it at $35 in 12 months will buy you that 5 bedroom mansion with the Jacuzzi that your wife craves.
But what people don’t realize is that for every Diedrich, there are 500 stocks under $10 stocks that are heading straight to zero. The media doesn’t talk about those. With my Penny Stock Specialist newsletter, I swing for the fences but always make sure my back is covered. I want to pick low priced stocks with huge upside potential, but I never, ever ignore risk.
What is the biggest misconception about penny stocks?
The biggest misconception is the definition of a penny stock. Some believe penny stocks only trade on the bulletin board or pink sheets. For me, penny stocks are companies that trade under $10 and are listed on any exchange. That means Massey Energy (MEE), Ashland (ASH), Bank of America (BAC) and General Electric (GE) were penny stocks in 2009.
Tim Sykes seems to be ruling the world of penny stocks these days. Is he your mortal enemy?
Ha! Actually Tim is a friend and a good analyst. He also has a great instinct for finding overvalued penny stocks. But my specialty is a little different – I spend most of my time finding undervalued penny stocks.
We both spent a lot of time working with Jim Cramer at TheStreet.com. What investing lessons did you learn from him?
Growth! Before working side by side with Cramer, I was a pure value guy. After four years, I knew more about growth stocks that most portfolio managers. Today, I use a combination of growth and value to pick under $10 stocks in the Penny Stock Specialist.
I think my style speaks volumes when it comes to my track record and longevity in the under $10 market. Most under $10 newsletters I followed over the past 5 years no longer exist. Their biggest mistakes were not using stop losses and being completely inflexible – they were always either value or growth. You have to be willing to adapt to the markets if you want to survive in under $10 land.
It seems like some tech companies go under $10 and never get back over that mark again. So what’s the difference between an Alcatel-Lucent (ALU) or a Motorola (MOT), and a company like eBay (EBAY), which is now trading over $23?
A lot has to do with debt. ALU and MOT were not in the best shape financially when the credit markets froze. So the road back is a bit longer compared to eBay, Broadcom (BRCM), Corning (GLW), Seagate (STX), Western Digital (WDC), or a SanDisk (SNDK) who were much stronger financially at the March 2009 lows.
Those companies traded under $10 in the past 14 months. Today, several are trading at $30 and $40 a share.
What under-$10 tech stocks are you looking at these days?
I like Sprint Nextel (S) mostly because everyone hates it. But the reasons most people don’t like Sprint no longer exist. For example, they now have one of the best smart phone line-ups and their customer service is now ranked near the top of the industry. On the financial side, the cash flow and current cash on the books is enough to cover debt payments for the next five years. Also, subscriber trends are about to turn positive. Book value is over $6 and I see Sprint trading to that level within 18 months.
Another stock I like is GigaMedia (GIGM). It’s an online poker software company trading at $3. As of 2006, it is illegal to play poker online in the U.S. Online poker is estimates to be a $200 billion industry. The government estimates that legalizing online poker with bring over $40 billion a year in revenue.
With deficits north of $1.6 trillion it’s a no brainer I think we will see a change in this law within 6-9 months. According to management, when (not if) online poker becomes legal in the U.S., GigaMedia will be the first to obtain licenses. If the law is not changed, GigaMedia has almost $2 a share in cash and little debt so the downside seems limited at these levels.
So for people who subscribed to your Stocks Under $10 newsletter at TheStreet.com, what’s different about The Penny Stock Specialist newsletter?
A lot of things are different. First, every recommendation will have a stop-loss. Stop-losses keep you in the game longer. If you used stop losses in 2008, you would have been able to invest in one of the greatest stock market rallies in 2009. Over 25% of the S&P 500 traded under $10 in March… you could have picked almost any one (if you didn’t get wiped out in 2008) and made over 100% in months.
Also, you will see shorts. Most under $10 stocks I look at have serious problems… so subscribers can now take advantage. Finally, you will see much more analysis and charts. I will also have issues dedicated to answering your questions.
And finally, where can people go to follow your research and stock picks?
You can go to www.StansberryResearch.com and click the Penny Stock Specialist newsletter. Also, my new Podcast called S&A Investor Radio is now on Apple’s iTunes. If you do not have access to iTunes you can listen by clicking www.arobinsonproduction.com/podcast.
It’s a once a week radio show format where I break down the markets, teach investors how to analyze stocks, and interview some of the top names on Wall Street. The Podcast is available every Wednesday and its for free!
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