The Three-Step System of T. Rowe Price June 28, 2005 *** Lincoln Hits the Nasdaq Irwin Greenstein reports from Baltimore, the sister city of Gotham... *** In the June 17 issue (http://www.pennysleuth.com/alertholder/06-17-05), yours truly broke with tradition by advising a day-one investment in Lincoln Educational Services when it started trading. Usually, the Penny Sleuth is loath to push anyone into the IPO froth, but Lincoln looked like a solid value in a dismal IPO market. Lincoln hit the Nasdaq on Thursday, settling in the middle of its range. It opened at $20 and closed at $20.17. This is slightly healthier than anticipated. In fact, it might have done a wee bit better had not competitor Corinthian Colleges lowered its earnings outlook and triggered a 17% drop in its own stock. Taking the broader view, of the 39 IPOs in Q2 so far, 16 have priced below their If you were taking your milk-and-cookies nap when the market opened on Thursday, it's time to open your little peepers and contact your broker. Lincoln's ticker symbol is LINC. *** As many Penny Sleuth regulars know, Thursday was also a big day here in One of the great suggestions that we decided to adopt was the introduction of microcap coverage. We consider small caps to have a valuation between $250 million and $1.5 billion. The reasoning we're including microcaps below $250 million is simple: Microcaps share many of the upside virtues of small caps -- only they are much more volatile, for the many thrill-seekers in our audience. Volatility can be measured as a standard of deviation. The Center for Research in Security Prices (CRSP) index tracks the bottom 10% of the U.S. market. Its microcap index has a standard of deviation of 37.4% dating back to 1926. We checked in with the E*TRADE Russell 2000 Index (a basket of small-cap stocks that closely tracks the Russell 2000 small-cap benchmark), and it had a three-year standard deviation of 19.4%. Translation: Based on that data, microcaps are nearly twice as volatile as small caps. Bottom line: NO CRYBABIES! In a sign of microcap mania, the Russell Investment Group (the folks who manage the leading small-cap index) just introduced a microcap index. Effective June 24, it's comprised of the smallest 1,000 securities in the small-cap Russell 2000 Index plus the next 1,000 companies below the index. The Russell Microcap Index represents about 3% of the U.S. equity market. The Russell Microcap Index reflects a whopping four-year return of 73.6%, versus 43.8% for the Russell 2000. As a footnote, the new index does not include less-regulated OTC Bulletin Board securities or Pink Sheets stocks priced under $1. So now your obliging Penny Sleuth is covering the entire penny waterfront: IPOs, microcaps and small caps. If you have any comments, please e-mail us at info@pennysleuth.com. In the meantime, check out our very own microcap maniac, Carl (The GRIPPER) Waynberg, at www.the-gripper.com. Trading on these tiny stocks, Carl has returned giant gains of 42.48%, 68% and 72%. *** Your economy-class Penny Sleuth just booked a flight to Vancouver for the Agora Wealth Symposium, to be held Aug. 10-13 at the downtown Fairmont Hotel. Good company abounds. Speaking will be Addison Wiggin, Bill Bonner, James Boric, Dan Denning, Steve Sjuggerud, Sala Kannan, Kevin Kerr...and many others. Topics of discussion will include the emergence of China and India, the controversial Sarbanes-Oxley ruling, ETFs, iShares and all kinds of brand-new ways to make profits in a global marketplace. So if you're interested in hanging onto your life savings, sign up for the symposium here: http://www.awsymposium.com/psleuth/. *** To hold you over until then, here's how T. Rowe Price used common sense and discipline to make a few billion dollars... ______________________________________________________ This Breakthrough Genetic Treatment Could Bring 5,000% Profits or More! A group of Scandinavian scientists is using the world's largest "genetic map" to pinpoint cures for mankind's deadliest ailments. Obesity, heart disease and stroke could be wiped off the planet with absolutely no side effects. This company's pioneering treatment may well become the industry standard. The U.S. government, major financial institutions and Big Pharma are lining up to partner or invest in this technology. Find out how you can, too... http://www.agora-inc.com/reports/VPI/WVPIF701 ______________________________________________________ The Three-Step System of T. Rowe Price T. Rowe Price knew how to make really big money on the stock market by using a simple three-step system that anyone can take advantage of. You don't need an MBA, a big corner office or an expensive computer. It is based on common sense and discipline -- meaning that the same basic skills you use to feed quarters into a parking meter can be applied to discovering incredible stocks. Price's system was inspired by a job that he landed after graduating from college, where he studied chemistry. At DuPont, he was required to learn about the chemical giant's finances…and he discovered his true calling in the spreadsheets, reports and analysis that crossed his desk. Over the years, he held jobs at companies that went bankrupt or used unsavory hardball sales tactics. But for a man like Price, even disappointment and despair became lessons in success. It was during those tough times that he began to actually formulate an investing The first maintains that the successful investor is intimate with the companies that he or she invests in. The familiarity reaches into the company's management, line of business and potential. The second pillar supports the notion that change is the only certainty in the investment world and that the best investors know how to exploit economic, social and political changes to extract the most profit from the stock market. From Price's perspective, the best company to invest in would be managed by executives who are resilient and progressive, in order to avoid or sustain and even capitalize on the inevitable shockwaves that ripple through the marketplace. While this philosophy laid the groundwork for the formation of the multibillion-dollar global financial services firm that bears his name -- it also led to the creation of his easy three-step system for beating Wall Street. The three steps to Price's system are (1) gather information, (2) evaluate the information and (3) make the decision. When it comes to gathering information, Price stayed current on breaking news, product announcements, industry trends, proxy statements, annual reports and government data. Eventually, Price attained the financial clout to speak with the management of a company under consideration. Unfortunately, most independent investors don't have the war chest or reputation to demand the time of CEOs, CFOs or research directors. In that case, it's best to subscribe to services with an insider track and extensive due-diligence capabilities, including... Fleet Street Letter: http://www.agora-inc.com/reports/FST/WFSTF431 Resource Trader Alert: http://www.agora-inc.com/reports/RTA/WRTAF107 Options Hotline: http://www.agora-inc.com/reports/OHL/WOHLF124/ Outstanding Investments: http://www.agora-inc.com/reports/OST/bookF474/ The Richebacher Letter: http://www.agora-inc.com/reports/RCH/WRCHF114 The Emerging Capital Report: http://www.agora-inc.com/reports/VPI/nuclearC00 In the second step of Price's system, the investor evaluates the information gathered. Some of the investment criteria most important to Price were... > Management's track record, reputation and sufficient ownership stake The P/E ratio (price of stock divided by earnings per share) was critical to Price. It is one of the best ways to avoid overpaying for stocks when they are in high demand. If an investor is enamored with a stock, he should have the discipline to wait for a down cycle, when the P/E ratio is low. Another opportunity to find a good company with a low P/E ratio is when it's relatively unknown -- a time when research, flexibility and discipline play important roles. In this case, potential may outweigh all other factors. But when it comes to new companies, for example, cash flow, growing sales and experienced management become more important than in a mature company. Now that all the information has been gathered and analyzed, it's time for the third and final step in Price's system: making the decision. Before submitting a buy order, Price revisited his data -- evaluating it against the latest developments, such as... > A downward trending of sales, earnings and profit margins The trick to evaluating the above criteria is in determining whether they are the result of a bear market or poor management. A declining market might present a bargain buying opportunity, assuming that the stock will rebound when the market returns to a bull cycle. On the other hand, if management has turned bad, the company could find itself in a fatal nose dive. Price's system presents guidelines for finding companies with profit potential. Investors must then find their own comfort level when it comes to flexibility and discipline -- two extremely important attributes regardless of which system is used. An investor's flexibility and discipline should be determined by his risk tolerance, profitability goals and time horizon. In other words, are you willing to bet that time will run out on the meter before you move your car? Happy investing, Irwin Greenstein ______________________________________________________ When the lights go out in Shanghai... 20 million people will cringe in the darkness, poking around for damp matches and greasy candles. On Oct. 26, 2004, a 578-page report revealed that China's rabid growth could grind to a screeching halt without this one ignored element. Virtually no investors know about the $30 trillion that must be invested in the "secret juice" that invigorates China's rampant growth (hint -- New York and California can't live without it either...) Grab a piece of the hidden juice right now and my best estimate is that you could easily double your returns. In all probability, you're looking at as much as eight or nine times your money. |