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The Moonshot Investor: Golden Rule Investing for Penny Stocks

This article was originally published on August 13, 2021, as part of Tom Yeung’s Moonshot Investor series. Investors interested in finding stocks with…

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This article was originally published by Investor Place

This article was originally published on August 13, 2021, as part of Tom Yeung’s Moonshot Investor series. Investors interested in finding stocks with 100x potential or more can subscribe to Tom’s mailing list here.

Source: John Brueske/

If you had to win a game of chess, would you rather play against a novice or against grandmaster Garry Kasparov?

If money were involved, I’d rather wager against someone who’s never played before. Anyone else and my non-existent chess skills would soon have me living on the streets. Perhaps I can convince you to play poker or tic-tac-toe instead?

The same holds true for stocks. If you want to beat the market, then you’re better off playing against clueless day-traders than billion-dollar quant funds.

That’s where penny stocks come in. Thomson Reuters reports that almost one-third of all U.S. stocks trade for less than $5, and most of these companies are too small for Wall Street to buy. If you run a $10 billion hedge fund, then playing with $100 million stocks looks a lot like a whale trying to squeeze into a fishbowl.

That’s why top stock pickers like my InvestorPlace colleague Luke Lango tend to focus on smaller companies when seeking Moonshots. His No. 1 electric vehicle pick for instance, amazingly trades for just $2. And if you want to find profit-producing penny stocks for yourself, then the Golden Rule Strategy might be right for you.

An illustration of a scientist pointing to "The golden rule of penny stock investing".Source: Catalyst Labs / Shutterstock

The Golden Rule of Penny Stock Investing

Let’s face it: penny stock investing is risky. According to academic studies, 60% of bankrupt companies end up leaving investors with zero. And of that 40% that do survive, fewer than a quarter rewards their investors with gains.

Picking winners however, is easier than you might think. That’s because penny and small-cap stocks are rife with various mispricings and inefficiencies. Imagine a chess tournament where no professional grandmaster was allowed to play. That’s pretty much like what OTC markets look like (extending the previous metaphor, it’s a goldfish bowl free of whales).

To succeed in penny stocks, we’ll combine momentum and qualitative-based strategies to create my Golden Rule of Penny Stock Investing.

Strategy No. 1: The Momentum Play

Regular readers would know my Momentum Master strategy by now: get in on rising momentum, and get out the moment the tide turns.

Meanwhile, novice penny stock investors will often ignore the warning signs of the typical penny stock con. It goes like this:

  • The Setup. A stock trades sideways for months. Financial filings are optional.
  • The Big Con. The company issues a flashy press release promising something solar, marijuana, blockchain or [insert your favorite hype here], sending the stock up 200%.
  • Cash Out. Novice buyers rush in after seeing the price action from the press release. But it’s too late — sellers are already unloading their stock, leaving incoming buyers holding the bag.

These stocks are usually an alphabet soup of unrecognizable names — HealthLynked (OTCMKTS:HLYK), Transphorm (OTCMKTS:TGAN), and so on.

Consider Viper Networks (OTCMKTS:VPER), an over-the-counter stock trading at near-zero valuations for a decade. In early February, shares of the LED/fintech/renewables company inexplicably ticked upwards. By the time the firm released its press release several days later, shares had already risen from 0.01 cents to 6 cents, an almost 60,000% return.

I suspect insiders were the ones front-running the market. Because the moment the flashy press release hit markets, the stock tumbled back to near-zero.

So rather than waiting around for the news, investors relying solely on Strategy No. 1 need to use Momentum Master to pick out insider buying before press releases get sent out.

Strategy No. 2: The Quality Play

On the other hand, longer-term investors usually consider the quality and potential of a penny stock’s business. It’s what my colleagues — Joanna Makris, Luke Lango and others — do at on a daily basis.

Consider Hertz (OTCMKTS:HTZZ), a stock that rose another 250% after I wrote about how the bankrupt rental car company could become the top penny stock of 2021.

“Hertz’s equity value might be worth anywhere between $800 million to $3 billion,” I wrote back in May. “Strangely enough, the longer Hertz spends in bankruptcy court, the better its chance of survival.”

Lenders finally agreed to a $1 billion valuation. And by the time Hertz re-listed as HTZZ a month later? Shares were worth over $2.3 billion, a 700% return. (Traditional valuation methods do work!)

However, this strategy could conversely leave you sitting on duds for decades. To avoid stagnation, we need something to bring the two strategies together.

Combining Momentum and Quality: The Golden Rule Strategy for Penny Stocks

Momentum. Quality. Cheapness. All these come together to form my Golden Rule Strategy:

To succeed in penny stocks, buy rising stocks with recognizable businesses and reasonable underlying brand value.

You can frame that on your wall. If you ever see me make a big bet on a penny stock, you can be sure the company fits that criteria.

Not only would this strategy have caught GameStop (NYSE:GME) in 2020, before Reddit pumped it to $480. It would also have picked winners like Bowflex-maker Nautilus (NYSE:NLS) and American icon Tupperware (NYSE:TUP) early on, while avoiding a whole host of duds along the way.

Notice how all of these winners are household names? The golden rule can be paraphrased as “does your next-door neighbor know the name of this rising stock?” If they do, that’s a good sign. But the moment you see their eyes glaze over at yet another unrecognizable ticker, it’s better to tread carefully.

Putting the Golden Rule to Work

I could keep giving you examples of past wins. But I know what you really want. So let’s put the theory to work. Today, we’ll take a look at two penny stocks that fit the Golden Rule Strategy: Gannett (NYSE:GCI) and Innoviz Technologies (NASDAQ:INVZ).

Gannett (GCI)

You’ve almost certainly heard of USA Today, the newspaper that seems to show up everywhere you look.

What you might not know is that its parent company Gannett is a penny stock company that also owns 252 other dailies, 308 weeklies, 375 local news websites and 100 international publications. We’re talking about everything from The El Paso Times to South Dakota’s Farm Forum.

That gives GCI the quality elements I look for — strong brands with plenty of local support and a stream of predictable revenues. Even if the firm isn’t profitable (and seems to be on the wrong side of Eric Fry’s Technochasm), its cheap valuation means that a private buyer could swoop in at a hefty premium — similar to what happened with Tribune Publishing back in February.

Momentum is also strong: GCI is up 100% year-to-date. Investors seem to be realizing that quality local content isn’t going away anytime soon.

Finally, GCI is also relatively cheap. Its $6 price tag represents a 0.13x price-to-sales ratio that should make value-minded investor rub their hands with glee.

Innoviz Technologies (INVZ)

Credit for this pick goes to my InvestorPlace colleague Joanna Makris.

“There are two very simple reasons to like Innoviz: technology and economics,” Ms. Makris wrote in her sweeping analysis of the autonomous vehicle industry. “The self-driving space is clearly filled with promise… You can buy INVZ now, as the stock isn’t overstretched, and wait to buy the others on (inevitable) blow-ups.”

At the time however, neither of us were sold on going long-only. Momentum was pointing in the wrong direction, and the Golden Rule Strategy wouldn’t allow buying a stock that was down 20% in the past-5 months. INVZ would continue falling another 20% after that.

At the time, we both used strategies to address that risk. Ms. Makris used a long-short strategy with Tusimple (NASDAQ:TSP) to lock in 42% returns, while I recommended two long-dated INVZ options (a volatility play) that are now up 20% and 100% respectively.

But following INVZ’s 20% gain in August, the Golden Rule Strategy suggests it’s time to jump in on the stock itself. The company had the potential, and now Innoviz has the momentum.

And what about Innoviz’s recognizability? Though your neighbors might not know INVZ, everyone in the automotive industry does. That’s because Innoviz makes up one of the big three lidar developers — the “eyes” of self-driving cars that let autonomous vehicles see the world around them. And because an early breakthrough could still propel any lidar player to the top of the charts, INVZ is the cheapest, highest-potential company that could soon be a household name.

What’s Your Batting Average for Stock Picks?

When it comes to picking stocks, most investors intuitively aim for a >50% batting average. If more than half of your stocks go up, common thinking goes, then surely you’re making money.

Meanwhile, experienced investors know that batting averages only make sense in the context of payoffs. If each win grants you 100x returns, you can afford a batting average as low as 2% and still double your money even if the other 98% go to zero. Meanwhile, those holding losers with serious downside will need a far higher batting average to offset their losses.

My Golden Rule Strategy for penny stocks sidesteps the mess. This tactic aims for high expected returns while maintaining a relatively high batting average by choosing firms with reasonable fundamentals.

The catch of course is that great deals don’t come around often. It can take a special set of circumstances — pandemics, financial crisis, fraud or bankruptcies — to send high-quality stocks into OTC territory.

That means it pays to be patient. Because when these easy wins do finally come around, they’re opportunities that shouldn’t be missed.

On the original date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.

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Drilling kicks off and uranium analysis planned at Benmara battery metals project

Special Report: Resolution Minerals has started drilling at its Benmara battery metals project in the Northern Territory. … Read More
The post Drilling…

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Resolution Minerals has started drilling at its Benmara battery metals project in the Northern Territory.

The 2,500m RC drilling program is focused on the highest priority targets of 4km and 2km strike length derived from a VTEM survey – and new Geoscience Australia research which identified prospective rock types previously mis-mapped.

The large-scale targets are prospective for sediment hosted battery metals including copper, silver, lead, zinc, and cobalt.

Plus, the targets are on the margin of the South Nicholson Basin and Murphy Inlier on the Fish River fault which is analogous and along strike from Aeon Metal’s (ASX:AML) polymetallic Walford Creek deposits (40 million tonnes at 2% copper equivalent).

It presents the company with strong exposure to the strengthening demand for battery metals – and a tightening market for copper.

And because the targets have no prior drilling, Resolution Minerals (ASX:RML) is confident this underpins the potential to rerate on any discovery made.


Fully funded to ramp up exploration

Resolution is fully funded to complete the drilling with existing cash following a recent $1.7 million placement.

“We are very excited to announce drilling has started on our maiden drill program at the under-explored Benmara Battery Metals Project in the Northern Territory,” managing director Duncan Chessell said.

“The program follows up large scale targets derived from our recent VTEM geophysics survey for sediment hosted stratiform copper and other battery metals.

“With virtually no prior drilling conducted into these large-scale targets, we look forward to the results of this exciting opportunity and accelerating exploration.”

The drilling will take three weeks to complete, with assays expected in early November.

Pic: The company holds the Wollogorang and Benmara copper-cobalt-uranium projects in the NT, which includes the Stanton cobalt deposit.

Assessing uranium upside off the back of strong prices

The area surrounding Benmara is also highly prospective for uranium, with the 51.9-million-pound Westmoreland Uranium deposit nearby.

Additional uranium occurrences have also been mapped within 2km of the Benmara tenement boundaries.

And with rising uranium spot prices close to US$50/lb – a nine-year high – it puts the company in a good position to assess the uranium potential of the project.


Wollogorang project potential

Then there’s the company’s Wollogorang project in the McArthur Basin in the NT, which is prospective for sedimentary hosted battery metals: copper, cobalt, and hard rock uranium.

There’s proven mineralisation within the Stanton cobalt deposit of 942,000 tonnes at 0.13% cobalt, 0.06% nickel, 0.12% copper.

And a VTEM survey highlighted the sediment hosted copper potential, identifying 40 conductors.

Plus, drill targets at the Gregjo copper prospect are set to test a chargeable IP geophysical anomaly underlying copper mineralisation intersected in shallow RAB drilling of up to 4% copper.

The project is subject to a $5 million farm-in agreement with OZ Minerals (ASX:OZL) to earn 51% interest, after which the company can retain 49% by participating.

Or at Resolution’s election, OZ has the option to earn 75% interest by sole funding to a final positive decision to mine, with Resolution appointed as operator.



Resolution Minerals share price today:

This article was developed in collaboration with Fresh Equities, a Stockhead advertiser at the time of publishing.

 This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.


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Why Nio Stock Needs Some Help When It Comes to the Charts

The electric vehicle (EV) trade has finally cooled off, which is a good thing given how far it had run. It would be hard for Tesla (NASDAQ:TSLA) to justify…

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The electric vehicle (EV) trade has finally cooled off, which is a good thing given how far it had run. It would be hard for Tesla (NASDAQ:TSLA) to justify a trillion dollar market capitalization or for these revenue-less SPAC stocks to keep soaring higher. Meanwhile, Nio (NYSE:NIO) is somewhere in between, with NIO stock performing quite well but not exactly on Tesla’s level.

Source: Robert Way /

At least, not yet.

In order to get there, the company will need to continue its domestic expansion in China and work on expanding globally. Tesla has been trading pretty well lately as it works on consolidating its massive gains over the last 18 months.

For Nio, though, the charts aren’t all that great right now. Combined with a high valuation, that has me on guard with the stock. For Nio, it needs the technicals to work in its favor in order for the stock to be attractive.

Trading Nio Stock

Daily chart of Nio stock
Click to Enlarge
Source: Chart courtesy of TrendSpider

A look at the chart highlights the recent struggles for Nio stock. Shares bottomed in early May along with most other growth stocks, as the bear market in this group came to end.

Nio ripped back toward $55 and the 61.8% retracement, but ultimately failed to hold those gains. It later failed to hold its major moving averages, while giving us an “ABC” correction down to the weekly VWAP measure.

This measure had been decent support throughout 2021.

However, after its rally back to the 21-day and 21-week moving averages, NIO stock gave us the “D” leg of that correction, resulting in the recent flush lower. We now see the stock below the weekly VWAP reading, as bulls scramble to see whether Nio can find its footing

If it can, we need to see Nio stock reclaim the August low at $36.24, as well as the weekly VWAP level. As of now, it’s currently undergoing a “monthly-down rotation” so long as it’s below $36.24. Back above those measures, and the high $30s could be in play.

On the downside, though, it’s possible we see the $31 to $32 area again. This area has been support twice amid two nasty corrections in Nio stock this year.

As a whole, Nio stock has been a leader amid growth stocks when the group is hot. But it has not done too well lately and it shows on the charts. So if the overall market struggles, this stock may too.

Breaking Down Nio

So many people will point to the fundamentals of a company like Nio without taking into consideration the valuation. Granted, I don’t put a lot of weight in the valuation either. At one point, valuations played a much larger role in the way that stocks behaved.

However, I think a few things have altered some of that Benjamin Graham thinking.

First, tech stocks blew the market wide open. No longer were companies having to follow traditional paths with only decent margins. Now software companies can routinely generate massive profit margins, while the tangible addressable markets (TAM) are significantly larger.

That’s allowed valuations to expand as well.

Second, the Fed’s low-rate and easy-money policies have forced investors to plow funds into equities. The returns in bonds (particularly internationally) and fixed income have dried up, forcing investors to chase returns in growth stocks — like Nio.

Is it healthy? Not necessarily, but this has been our reality for quite some time and it will likely remain that way for the foreseeable future.

I’m not calling for some great reckoning. A stock like Nio can continue to go up as long as it continues to deliver. But that remains a question mark.

While the company reported solid quarterly results last month, Nio’s July and August monthly auto deliveries disappointed investors. Furthermore, Nio was forced to trim its third-quarter delivery expectations.

Throw in Nio’s plan to raise $2 billion in stock, and it creates even more pressure on the stock price.

The Bottom Line on NIO Stock

It’s not that I have any specific gripe against Nio, but the facts are simple. For an automaker, the stock commands a high valuation and the company doesn’t have enough momentum in its underlying business right now. Thus, we need to see beat-and-raise quarters and delivery results in order to spur the stock higher. In line and disappointing results aren’t going to cut it.

Second, the charts don’t look very good. Back above $36.25 and my tone will change a bit. Otherwise, I remain defensive on Nio stock for the time being.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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ChargePoint Stock Deserves to Double from Here

Even with the electric vehicle revolution in full swing, not everyone sees the bull thesis for ChargePoint (NYSE:CHPT). Indeed, CHPT stock was cut in…

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Even with the electric vehicle revolution in full swing, not everyone sees the bull thesis for ChargePoint (NYSE:CHPT). Indeed, CHPT stock was cut in half from the the beginning of 2021 to mid-September, so clearly investor sentiment is at a low point.

Source: YuniqueB /

This could present an opportunity for folks with a tolerance for volatility. After all, the essence of contrarian investing is to get excited when others are fearful.

Could the pessimism surrounding CHPT stock be misplaced? The answer is probably yes, since the U.S. government is leaning toward policies that should benefit ChargePoint.

That, along with the company’s impressive revenue growth, indicate the share price is lower than it ought to be. Over the long run, this situation should correct itself, leading to excellent returns for patient shareholders.

A Closer Look at CHPT Stock

There’s something about the $20 price point — it’s like a magnet for CHPT stock in 2021.

Without a doubt, this must be frustrating for the long-term stockholders. As you may recall, ChargePoint shares propelled as high as $44.50 in January of this year.

The sentiment was riding high, but it wasn’t the best time to take a long position. CHPT stock slipped to $20 in March.

Believe it or not, the stock rose and fell back to that same $20 level in April, and then again in May, and once more in August. As of Sept. 23, it was back to $20 and change yet again.

At least we can say there’s strong support at that level.

The sellers can’t expect to fend the buyers off forever. $30 and eventually $40 are reasonable price targets — CHPT has been there before, and the bulls can anticipate a revisit of these price levels.

ChargePoint Can Electrify the Nation

One great thing about investing in ChargePoint is that it allows you to be brand-agnostic.

To put it another way, you can hold the stock and be part of the vehicle electrification movement without betting on any specific automaker.

Yet you’d still have to believe in the future of electric vehicles. It’s a reasonable sector to invest in — at least, Bank of America analyst Martyn Briggs seems to think so.

As you may be aware, President Joe Biden’s administration aims to have 50% of vehicles produced in the U.S. be electric by 2030.

To achieve this ambitious goal, according to Briggs, “you’re going to need to see a lot of up– of supply-chain shifts. Obviously a lot of manufacturing capacity, huge amounts of battery manufacturing in particular to achieve that that we can come to.”

It’s not difficult to connect the dots and see how an electric vehicle charger maker like ChargePoint would benefit from this.

Briggs makes no bones about it: “Net-zero targets are real, and they’re not going away.” And if the government is going to enforce a transition to zero-carbon, zero-emission mobility, Briggs considers vehicle electrification “an obvious low-hanging fruit.”

More Ports, More Revenues for CHPT Stock

Speaking of low-hanging fruit, the CHPT stock bulls can simply point to ChargePoint’s outstanding second-quarter 2021 fiscal data. In a time when the government hopes to advance vehicle electrification, ChargePoint is making strides on the financial front.

For the second fiscal quarter, ChargePoint grew its revenue by 61% year-over-year. Plus, for the full year, the company raised its revenue guidance by 15% to a range of $225 million to $235 million.

Moreover, ChargePoint’s network of charging stations is expanding quickly. The company’s count of activated ports exceeded 118,000 as of July 31. And by the by, this is a global phenomenon — ChargePoint counted more than 5,400 of its charging ports in Europe.

It looks like the Biden administration is going to push hard for vehicle electrification. This should provide a long-term tailwind for ChargePoint. Is this a guarantee that CHPT stock will rally in the short term? Definitely not, as near-term price fluctuations are bound to happen.

But as Briggs said, the net-zero targets are real. They’re not going away, so investors must adjust their strategies accordingly. Given the company’s impressive fiscal data, an informed investor’s strategy could certainly include a position in ChargePoint.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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