Investing

The Secret to 55,919% Returns on Penny Stocks

Investing and stock market concept gain and profits with faded candlestick charts.
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Imagine buying a stock for 24 cents, and one day opening your brokerage account to see eye-popping returns of 55,919%. Your stock is now worth $133.

Sound like a fairy tale? It isn’t. Today I’ll share a story about how one member of the 247wallst.com’s investing team achieved these results in their portfolio, and the backdoor method you can use too.

Aren’t Penny Stocks Risky?

The common wisdom is that penny stocks are worth pennies for a reason. You pay for what you get, after all. And my experience with that on average is true. If you buy 10 penny stocks, there are good odds you lose money on 9 of them. But what if you could pick the right one instead? You could secure the kinds of returns that turn a mere $2000 investment into over $1 million.

What Are Penny Stocks Anyway?

Penny stocks as you might imagine are low share price stocks that are sometimes literally pennies — below $1. But as with all things, inflation has come for penny stocks as well. Now when people talk about penny stocks, they are typically referring to stocks that:

  • Are below a $5 share price
  • Contain higher risk
  • Have a lower market capitalization — which is the total value of the company
  • Have lower liquidity — meaning there are fewer people interested in buying and selling these stocks compared to larger companies
  • Have the potential for higher returns

You’ll commonly see penny stocks framed like this: “If you buy this at 10 cents, all it has to do is get to $1 for you to 10x your money” and you and I both can see the appeal with this simple statement.

Penny Stock Perils

But of course, if it were this simple, every investor like us would just buy penny stocks and get rich, right? As would every Wall Street trader, every fund manager, every sovereign wealth fund, and everyone with more than 2 cents to invest. And with all these buyers, the penny stock would quickly cease to be one. It would graduate to simply being called a stock.

So why aren’t penny stocks flooded with buy requests? Simply put, because 9 out of 10 of them are garbage and you will probably lose money if you buy them.

The Making of a Penny Stock Millionaire

Given all this, let’s go back to the 247wallst.com’s analyst’s returns with a penny stock. How did he buy a stock for 24 cents that’s now worth $133 without losing his shirt? And more importantly, how can YOU do this today?

To learn that, we need to go back to July of 2010. Here’s what was happening:

  • BP had finally capped the leaking well from the massive Deepwater Horizon disaster
  • Apple had just released the iPhone 4 with infamous antenna reception issues (Antennagate)
  • Dodd Frank was signed into law
  • The movie Inception was released

And there was a relatively small component supplier for video game console companies and computer enthusiasts. I won’t beat around the bush — the company is Nvidia (Nasdaq: NVDA). It was trading under $10 at the time. So how does our analyst own it — still to this day — with a cost basis of 24 cents?

Simply put, he bought a world-beating company whose technology could be applied in many, unexpected ways. First with crypto and now with the artificial intelligence arms race.

Since he bought, Nvidia has split their stock two times. First a 4-for-1 split, which means every share he owned turned into 4 shares, and then again with a 10-for-1 split. The result of this is he now owns 40 shares for every share of Nvidia he originally bought, and as a result his original cost basis dropped from $9.60 to 24 cents. And if you had bought 1 share of Nvidia in 2000, you’d own 480 shares of it today.

Backdoor Penny Stock Profits

Quite frankly, this is the only way I’d personally buy a penny stock today. Which is to say I would:

  1. Buy companies with enormous opportunities for growth. Look for companies with lots of optionality
  2. Hold them for a very long time. Remember, our analyst has been holding Nvidia since 2010!

You can see this happening already with Broadcom (Nasdaq: AVGO) who recently announced a 10:1 stock split.

And if you’re looking to buy a backdoor penny stock today, we write about these kinds of companies on a daily basis. Check out our most recent coverage on Eli Lilly (NYSE: LLY) as an example. With a $880 share price, you probably won’t get down to a 24 cent cost basis if they choose to split their stock, but you’ll be well on your way to learning about an excellent way to invest in “penny stocks.”

 

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