Friday, January 07, 2011

Functional Inspiration Blog; Money and Innovation in the Microsphere by Josh Levine, The Microcap Bull Market is On

Functional Inspiration Blog; Money and Innovation in the Microsphere by Josh Levine, The Microcap Bull Market is On

January 7, 2011

Functional Inspiration: Money and Innovation in the Microsphere

By Josh Levine

The MicroCap Investor advisory ended 2010 on a high note! We captured a 138% profit by selling one-half of our position in a company that’s leading the charge, so to speak, in energy solutions for transportation.

Other top gains currently in our portfolio include +152% for a developer of a new class of cancer drugs, +110% for a supplier of advanced equipment for large-scale solar projects, +94% for a designer of 3G/4G wireless chips, and +80% for a stem cell developer, which was recommended less than five months ago.

And let’s not forget the +67% in a company which has developed and is selling mobile services to multi-billion dollar markets worldwide in dire need of its cost-effective and efficient solutions. I believe this one has all the characteristics of rapidly becoming one of the great microcap winners of the decade.

And there's even better news.

What we've experienced in the above-mentioned positions is only a preview for what appears to be a period when microcap profits (for our subscribers, at least) will be fast and fierce!

The recent gains in our micros, substantial as some have been, hardly measure up to the bonanzas of past microcap bull runs. An important reason is that this bull market lacks the full participation of the public which has remained enormously risk-adverse after the blow-ups, busts and downturns of the past decade.

Depending on the breadth and length of this upturn, individual investors will increasingly come back into the game -- eventually even in big numbers -- only by then the biggest gains will already have been registered, by those way ahead of the herd.

For now the larger and more seasoned microcaps are storming ahead while most of the stocks below the $100-million threshold that are popular among smaller investors are generally struggling for traction. When those smaller stocks do gain traction, however, their profits will dwarf those we're currently riding.

As you'll see below, the numbers tell quite the tale of this emerging bull market for microcap investors.

Adrenaline Shot

For more than five years, the benchmark Russell Microcap Index has experienced only the briefest intervals when it significantly outperformed the S&P 500 Index. It's true that since March 2009, the Russell's gains have surpassed the impressive climb of the S&P 500 by a 136% to 88% margin.

Yet from the March 2009 low to Oct. 7, 2010, the microcaps' edge was only 96% to 71%. Considering that small stocks were battered even more severely than the larger caps during the 2008 crash, the magnitude of their rebound is not surprising.

What's more telling is the Russell's performance since Oct. 7. It shows smaller stocks enjoying a shot of adrenaline to accelerate their pace over their bigger brethren.

Between Oct. 7 and today, the Russell Microcap Index has advanced by nearly double the rate of the S&P 500, gaining 19% to the S&P's 10% rise. For these three months, the smaller stocks have clearly established leadership in the market.

The performance of the stocks in our microcap portfolio for the three months from Oct. 7, 2010 to Jan. 6, 2011:

Russell MicroCap Index: +19%

S&P 500 Index: +10%

Overall, one-half of our portfolio beat the S&P 500 during this period, and seven of our microcaps topped the Russell Microcap's gains (i.e. +82%, +62%, +59%, +34%, +31%, +28%, +23%), with three positions better than tripling the benchmark performance.

The other half of our portfolio, comprised entirely of sub-$100 million market cap and/or OTC Bulletin Board-traded stocks, have mostly been treading water during these months.

January's Lasting Effect

This month's notoriety among investors in small stocks is well documented. By most accounts, microcaps usually ring up their best gains in January thanks to many factors, not the least of which is old-fashioned optimism about a new year.

Buying is also driven by investors and traders re-establishing positions after selling shares in December for tax-loss purposes or to raise cash.

The more recent change to the January Effect (which has became a cliché) is that buying now gets going in December as investors anticipate the momentum ahead. This time around, however, the pace quickened as soon as the start of October and has continued to accelerate right into January!

The outlook for microcaps in 2011 is extremely positive and has all the makings to be a tremendously profitable year for us. If the microcap bull kicks up the storm I believe it will, then all of the stocks in our portfolio will rally like crazy. But the best gains will be captured by those positions currently in the bottom half where valuations remain truly enticing.

Small, innovative companies like those in the MicroCap Investor portfolio are in that sweet spot to deliver on their promise and to reward investors with life-altering profits!

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MicroCap Investor delves deep into the world of small stocks to identify big winners. Levine targets innovative companies on the path of the new and revolutionary, developing technologies that disrupt entrenched markets to create tremendous value.

About Josh Levine and Levine's MicroCap Investor

Josh Levine has 25 years of senior-level experience in analyzing technology trends and investing in top-performing micro- and small-cap stocks. He excels at assessing management teams and evaluating new innovations and their impact on corporate valuations.

In 2002 he joined independent investment-research boutique ChangeWave Research, where he was editor of ChangeWave MicroCap Investor since 2004, becoming Levine's MicroCap Investor in 2010. He has been editor of the flagship ChangeWave Investing since 2007.

Levine is also senior analyst for ChangeWave Research. Through its survey network comprised of 25,000 members, ChangeWave tracks the rate of change in corporate and consumer demand trends and provides the results through an institutional research subscription service. Its macroeconomic research is among the best on Wall Street.

More on Levine’s bio:

Learn more about subscribing to Levine’s MicroCap Investor: is partnered with Josh Levine and MicroCap Investor as part of its mission to provide investors with research tools to explore the world of small stocks. The team operates this web site and manages the administration and marketing for MicroCap Investor. is a leading investment and industry research portal, with resources covering high-growth sectors including technology, biotech and cleantech.

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