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Blog : The Beatles, the Penny Stock, and Blue Chip Investors
by John Whitefoot on November 21st, 2008
At their November 4, 1963 Royal Variety Performance in London (attended by Queen Elizabeth and the Queen Mum) John Lennon made his now famous quip. “For our last number I’d like to ask for your help. For the people in the cheaper seats clap your hands. And the rest of you - if you’ll just rattle your jewelry.”
I have to admit, the stock market these days is beginning to resemble that performance; what with the once exclusive blue chip behemoths now rubbing shoulders with the lowly penny stock.
So, for all those blue chip investors who have found their portfolio flirting with (and in some cases embracing) penny stock territory, we welcome you. You’re in good company. After all, not all penny stocks are fraught with risk. Most yes, but not all.
And certainly not at this juncture in history. There truly are more compelling penny stocks trading at bargain sale prices than at any point in the last 20+ years.
An article by Reuters noted that there are now 101 Blue Chip stocks now selling for under $10 a share. Not all of these stocks are deals. Some are just cheap. For example, $10 will get you 10 shares of E*Trade. There are other house hold names flirting with penny stock status: including Citigroup, Xerox, Motorola, and Starbucks.
All told, one senior analyst at Standard & Poor’s noted that this represents the greatest number of sub-$10 stocks in the index in at least 28 years. His data only reaches back as far as 1980.
According to S&P data, 101 is almost double the 59 companies below $10 in October 2001 when the dotcom meltdown was in full swing. It’s also almost triple the 35 sub-$10 stocks in October 1987.
For penny stock aficionados there is a plethora of healthy big companies now trading for under $5. It's part of the effects of the market being down 37% year-to-date and the fact that many hedge funds and institutions have been selling the stocks of sound companies to satisfy liquidity needs.
A recent article on Forbes.com (not penny stock professionals) screened for beaten down penny stocks (trading for $5 or less) with positive earnings. Some are household names…others may be new to you. Amkor Technology, Inc. is a subcontractor of semiconductor packaging and test services; and USEC, Inc., together with its subsidiaries, supplies low enriched uranium for commercial nuclear power plants worldwide.
Force Protection, Inc., provides ballistic and blast protected vehicles primarily used to support armed forces and security personnel; and Sealy Corporation makes beds. Are these penny stocks bound for higher ground when the markets recover? I suppose time will tell.
The point is, there are a lot of excellent stocks that are now trading in penny stock territory. And penny stocks have become very attractive for a number of reasons. For those who have never invested in penny stocks before, tales of tanking stocks may have you thinking you should get in now; hoping to find a good deal or two.
There are also a lot of seasoned investors who have never paid attention to penny stocks in the past. But the large number of great stock trading for under $5 have some hoping to make up for the 65% they lost on their foundational Blue Chips.
For those penny stock investors use to getting more bang for your buck; the timing is perfect to snap up those investments others are ditching at fire sale prices. The timing is also perfect for those mid and large cap investors now casting a steely eye at penny stocks.
Because, like the rest of us, they know that eventually, the smoke will clear, the economy will recover, and penny stocks will snap back to much higher levels. But which ones? Subscribe to PeterLeeds.com (The penny stock professional) and find out.