The subtitle of this book is “Why You’ll Never Buy a Stock Over $10 Again” and it makes a compelling point. Stocks below $10 can have a great return on investment. The primary reason is that some of the largest pools of wealth are conservative and have rules about investing in stocks below $10 or $5 depending on how conservative they are. The rules are usually that they simply can’t invest in them at all. This present an opportunity, because at times you can spot something that cheap that will most likely cross the $10 threshold. If it is a good investment the big funds might invest into it driving the price higher past $10 from sheer volume.
The first fourth of the book is devoted to demonstrating the power of investing in these kinds of companies. The book is a very easy read. I finished reading it in a day during a slow day at work. It is very clear and very concise. Every chapter is summarized in a little table, and there QR codes for our phones that can lead you to more information on the web. The summary at the end also lists all the settings for a stock screener to find the kind of opportunity discussed in that chapter. This makes the book great for quick reference when you are looking for new investments.
The rest of the book is devoted to these new investments. They come in a few flavors:
- Fallen Angels – Large Cap stocks ($1bn+) that have fallen below the $10 mark. F was an example. Current examples include BAC and S. You still have to research whether these companies can make a return, finding them is step 1.
- Undiscovered Growth Stocks – The name says it all. Examples of this include DAR. The point is to find these before the market before they are over-hyped and overpriced.
- Bargain Bin stocks – Similar to 1 above but can be less than $1bn market cap. These are ones that trade for below book value (an example was TSO), along with a few other things to look for. Other ones included here are fund stocks like JNS which can trade at a discount to assets when fear runs rampant.
- Biotech Plays – Risky but lucrative. Playing FDA approvals and other news can pay off big, but be careful. DNDN was the example given. When the FDA asked for more information the stock fell huge, but more information is not a rejection. If you’d bought the decline, when the FDA did finally give approval it rocketed.
- International Stocks – This is basically just looking outside of our borders for companies. This means looking at ADRs. Finding companies in growth economies, but these come with their own set of risks. I would invest in a Brazilian company before a Chinese one, but that might just be me. If PBR falls below $10 I might take another look. Oil is depressed so oil stocks in countries developing their rich reserves, such as Brazil could be a good play. They will take a while to get to full and efficient production, maybe around the time prices spike again.
I won’t be posting the settings for the screeners or the particular strategies discussed in the book for finding stocks below $10. I am not here to voice or usurp someone else’s idea. If you’re curious order the book (I have linked Amazon below for your convenience but you can buy it from your local bookstore if they have it). I will discuss the results of my own search, and how I trade them.
The last portion of the book discusses sources for research, and some talk about wall street and their pundits. This part is still a great read, but I didn’t find it as enlightening as the first 3/4ths of the book.
This is a short book packed full of great information. I would suggest everyone get a copy. A few of my friends have already borrowed mine and found it to be massively informative. You’ll see some of my research that spawned from this book soon.
I am working on a few articles about stocks that crossed my radar partly due to this book. Been so busy with lots of things so I thought I’d review the book for you first.
I’ve linked Amazon below if you want to pick up a copy.
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