Penny Stocks Are Better Than Large Caps

| February 27, 2012 | 0 Comments

Sears HoldingsJust because a company is big doesn’t make it a good investment.  History is littered with examples of big companies that have underperformed for their shareholders… sometimes significantly.

While a stock’s market cap shouldn’t be ignored, it should never be the only reason you invest in a company.

As a matter of fact, there are reams of statistical evidence that show small cap companies outperform large cap companies over time.  And the funny thing is, small companies are often better run than their larger peers.

For a perfect example, look no further than Sears Holdings (SHLD

I’m sure you’re familiar with Sears.  We’ve all been to their stores.  Most of us have purchased something from the company at one time or another.

So what in the world does Sears have to do with penny stocks?

I’ll get back to that in a minute.  First, let’s talk about why the company has been in the news lately.

In a nutshell, Sears is in trouble.  The retail giant has been a huge disappointment lately, posting their largest quarterly loss in nine years.  In fact, the company reported a massive fourth quarter loss of $2.4 billion.

Here’s the problem…

Sears is too darn big.  The corporate structure is a mess.  And, management simply can’t focus on increasing sales and cutting costs with such a cumbersome organization.

Fortunately for shareholders, management is finally taking steps to streamline the company.  In December, the company announced they’d be closing 120 Sears and Kmart stores.

More importantly, just last week, Sears revealed plans to separate some of their smaller-format businesses (the Hometown and Outlet shops) and sell 11 store sites.  These actions will raise up to $770 million.

Why is this so important?

Because it’s about more than just raising money (although $770 million is sure to help).

You see, management is streamlining the company and focusing on what they do best.  They don’t need a bunch of different store types and brand names.  What they need is to get customers in the door.

And, it seems like they might finally be on the right track.

Here’s the thing…

Penny stocks are way ahead of the game!  Most of the well run, smaller companies are already streamlined.  They already focus on their core businesses.

When you buy a penny stock, you can be sure you’re getting solid exposure to the core business of the company.

It’s no wonder small caps consistently outperform large caps. And it’s just another compelling reason why you should invest in penny stocks.  I mean, who doesn’t want to make more money?

Yours in profit,

Gordon Lewis

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Category: Investing in Penny Stocks, Retail Stocks

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