Penny Oil?

At the beginning of last week when we updated our Solid 30 List, which currently only has 20 companies on it, Basic Earth Sciences was trading at just over 50 cents. Friday it traded as high at 74 cents; creeping up on practically no volume. With oil hitting over 42 bucks a barrel, it makes one wonder about penny oil plays. The President over at Basic Earth has been grinning from ear to ear in recent press releases. Here is an excerpt:

"We are extremely pleased to report that this marks the fifth year in a row that Basic has reported a profitable year; simply a tremendous turnaround from six years ago", commented Ray Singleton, president of Basic. "Furthermore, with our shift in strategy to include exploration drilling we believe that Basic has increased its upside exposure considerably and we believe, our higher share price reflects it. With strong cash flows from higher commodity prices reinvested in drilling, the Company has been able to fund an operational tempo not experienced for a number of years. We believe we are on the verge of a breakthrough to even higher revenues and profits and that this will translate into increased shareholder value."

Full Disclosure: Paul Saad and Associates currently holds no position in the company mentioned here.

Microcap Value?

A favorite investing technique of many serious penny stock players is to consider the cash. Cash and cash equivalents is the amount of money a company has in bank accounts, savings bonds, certificates of deposit, and money market funds. It is usually difficult to place value on intangibles related to a company. With cash there is no guess work. Consider the facts: A company with plenty of cash needs to rely on no outside financing and shareholders need not worry about additional share dilution through private placements. A solid balance sheet means the company will be around at least as long as the cash lasts (do not invest in companies that are burning through their bank account). Research, new products, and marketing all need funding: Cash now means more revenues later. Keep in mind that a company with a tidy little sum in their bank account should have little or no debt. Steer clear of a stock with cash that was merely generated by a loan or other debt.

Here is a penny stock worth looking at:

AccuFacts Pre-Employment Screening Inc APES.OB
2180 State Road, 434 West Suite 4150Longwood, FL 32779
Phone: (407) 682-5051Fax: (407) 682-5051
Email: investorrelations@accufacts.com
Web Site: http://www.accufacts.com

Accufacts Pre-Employment Screening, Inc. is primarily engaged in researching and providing decision support information to its clients, generally Human Resources departments of corporations, through its wholly owned subsidiary, Maglio-Accufacts Pre-Employment Screening, Inc. These services typically include pre-employment background checks and screenings of new hire candidates and/or employees.

Cash: With a market cap of only $2.69 million and a cash position of around $1 Million, cash is close to 40% of market value. The current Bid price on the stock is 33 cents. Last trade at 40 cents. ***Alert - Accufacts is no longer a trading stock. According to this press release, APES has been bought for 75 cents a share.
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Disclosure: Paul Saad and Associates (or anyone associated with us) currently has no position in the companies mentioned here.

Penny Stocks: Trust No One

Many investors (especially those just starting out) want to delve into the world of micro-cap stocks, mainly because of the tremendous potential for gain which stocks trading at or below $1 can deliver. Unfortunately many investors get most of their stock training by visiting web sites which specialize in nefarious practices under the guise of "expert opinion". The most important thing to understand about stock investing, and micro-cap investing in particular, is that you should trust no one. Do not trust company officials, investor relations representatives, web site operators, message board bloggers, stock gurus, grandma Miller, uncle John, or cousin Fred. Always find the facts for yourself. Never take anything for granted. Most web sites which profile micro-cap stocks are bought and paid for promoters. And just because they disclose this (which the SEC requires) does not make it better. However, the worst offenders are those not paid in cash but in free trading shares. Some of these operators will be dumping hundreds of thousands of shares (while you are buying). Kind of makes it hard for the price to rise, doesn't it? At bottom, there are several things for an investor in penny stocks to watch out for: high volume, strange financing deals, outrageous claims by the company.

High Volume: This is a primary red-flag for micro-cap stocks. A tiny company that trades more than a $100,000 in (dollar) volume on an average daily basis should be reason for alarm. Most tiny companies with high volume (dollar volume in particular) have a huge amount of shares outstanding and/or are being promoted (usually by dubious individuals).

Wicked Financing: Small companies have a hard time getting big cash injections. One way they get cash is by making complex deals with accredited investors. Some of these deals include warrants, preferred stock, and debentures, set up in ways that could cause a serious amount of dilution. Of course not all deals are bad for the company or for the other shareholders. It really depends on the particulars. Just read through the company filings and you will know when things just don't add up.

A New Breakthrough: When a micro-cap company comes out with a press release which makes a claim (such as a cure for cancer, etc.) be more than a bit skeptical. Outrageous claims are almost always fiction.

The best research is reading the corporate filings. Find them right at the SEC site.

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