Proactive investors

Why there’s no success like penny share success including big news from Dialight

(First published – 10 November 2009)

Dialight ticks up 6% after sealing major contract

Shares in Dialight (ticker:DIA) jump 6% after it announces a major contract with a US telecom tower operator for its LED lighting.

Dialight’s LED dual strobe offers more than ten years’ life expectancy and reduces the need for expensive and dangerous tower climbs to install replacement lights. This is just one application, but LED lighting is set to replace all other forms of lighting in the coming years.

Shares in Dialight have doubled in the last year.

You can read more about hot small cap companies with exciting potential like Dialight before anyone else with Penny Sleuth’s twice weekly email. Click here and you could join more than 24,000 penny share investors for free.

Why there's no success like penny share success

The big date is November 12 – this coming Thursday!

The day is ringed in my diary, although I am not likely to forget it.

Because this is the day on which one of the penny shares I’m tracking is going to make a major announcement.

Penny shares are the place for big excitement and big profit. The main reason for this is that the fortunes of these bold little companies can be transformed overnight.

On just a single day something can happen that can turn them from ugly ducklings to stock market swans. This can send their share price soaring by 50%, 100% or even more.

Such transformations have already happened several times this year. Here are a few examples.

·    Sabien Technology (ticker: SNT)
·    Gulf Keystone (ticker: GKP)
·    Phytopharm (ticker: PYM)

Let’s take each of these in turn…

Take Monday, August 10 for instance. That day, shares of Sabien Technology (ticker: SNT) jumped from 7p to 29p – that’s a gain of over 300%!

The reason? Sabien, which for years had been developing a system that would make boilers use less energy, struck a distribution deal with Serco and British Gas.

Just four days earlier there was a similar story. That day, the share price of Gulf Keystone (ticker: GKP) more than doubled – rising from 13p to 28p after it struck oil in Kurdistan.

And then there was Phytopharm (ticker: PYM). On October 13 its shares were languishing at 6p. A day later, after it had announced promising results of its drug treatment for Parkinson’s Disease, the shares were at 26p.

These companies show the type of instant gratification that the stock market can deliver – but only if you invest in penny shares.

Blue chips can’t compete with small cap shares like Cairn Energy

Do you think that the price of any FTSE 100 share could double overnight? No. It just does not happen.

Banks have enjoyed a remarkable recovery this year. But none of them has managed the sort of dramatic turnaround seen in penny shares. I can’t find an instance of any one of them climbing more than about 20% in a day.

I have also looked at BP. On September 2, it announced a “giant oil find”. The stock market’s reaction? The shares rose by a puny 4%.

But suppose that BP had been a smaller company. Suppose it had been the size that Cairn Energy (ticker: CNE) was back on January 19, 2004.

That day Cairn revealed that it had struck oil in India. The result? Within 24 hours its share price was up by 49%.

There’s more to penny share success than you think

Now there’s a particularly interesting aspect to these shifts in fortune if you’re an investor. It’s that the shares which make a sharp and sudden move upwards normally continue to do well.

Something has happened to them that is truly ‘transformational.’

From being businesses that are struggling along with their fingers crossed for the future, they are suddenly in possession of something of real value.

Whatever this something is, it’s going to bring in a lot of money and, crucially, secure their future.

The stock market rarely appreciates the full implications straight away. Some investors, seeing the overnight jump in the share price, take their money and run.

There is a period in which the short-term speculators exit and new long-term investors come on board. And you shouldn’t underestimate the long-term earning potential of penny shares...

But whether you are a short-termist or a long-termist, if you want to get some bang for your buck, you need to stick to the penny share market.

Partly it’s a simple matter of mathematics.

Small cap equals big gains

Today BP is valued at £110bn. If BP is going to double its share price, it needs to create that amount of value – value that is equivalent to the GDP of Singapore.

It has taken BP 150 years to get this far. Is it suddenly going to create £110bn of value overnight? No.

But penny share companies are valued at just a few million. It is easy for them to create that amount of value overnight. A good oil strike can be worth hundreds of millions. A new medical treatment can be worth as much.

The other factor that makes penny shares so exciting is that their fortunes can depend upon a single thing.

They have not diversified into a myriad of products and markets. They have been working single-minded on one project. If it comes to fruition, they get rich – if it does not then they are in trouble. This of course makes penny shares risky.

Now, there are plenty of well diversified and, frankly, boring shares to choose from if that is what you want. But I imagine that, like me, you prefer a bit of excitement in your life. You like to be invested in shares that can multiply overnight.

Sometimes these developments come out of the blue. But at other times you know the crucial date in advance. For one penny share on my watchlist, Thursday November 12 is that crucial date. On this big day, this company will make an announcement that could be worth many millions of pounds.

The frustrating thing is that I can’t reveal the name of this company in today’s Penny Sleuth. That’s because it’s a company I’ve just tipped in Red Hot Penny Shares.

But in Thursday’s Penny Sleuth, I’ll let you know what was announced. For me, we may well be about to witness the anointing of the next penny share pharmaceutical superstar. Stay tuned!

Good investing,

Tom Bulford
A Penny Sleuth article for Proactiveinvestors

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