Have you ever wanted to kick yourself because you sold a stock that just kept going up and up?
It happens to the best of us…
Earlier this year, at Red Hot Penny Shares it happened with DRD Gold.
We bought the stock at 265c in June 2019 and sold it at 1577c in May 2020.
Adding in the dividends we received I was very happy with a 519.62% gain.
A mere 2 months later the stock hit R28.75… We could have made 984% in gains.
We thought the 519% gain at the time was stupendous.
It turns out we hit the eject button way too early.
Our reasoning at the time was sound.
We figured back in May 2020 the value of DRD Gold was pretty much priced in. And it was time to realise those profits and exit the position.
We even warned readers ‘the stock may continue higher'.
However, we didn't anticipate it almost doubling again THIS YEAR!
But thanks to immensely low investor confidence the gold price kept going up - and the rand kept getting weaker. Both boosting DRD as we exited the stock.
Look, these things happen in small-cap investing.
Trust me: A too-early exit for a gain in the hundreds of per cent is WAY better than staying in a stock that loses you money.
But it doesn't mean you can't learn lessons from it.
Exit strategies are almost more important than picking what stocks to buy
Taking profits prematurely is annoying as hell, especially in this instance.
But we can tell you from experience it’s nowhere near as annoying as watching your profits blow away like sand in the wind because you held on too long…because you got emotionally attached to a trade that suddenly turns on you.
That happens a LOT with small-caps.
For months on end, you’re winning. Then suddenly you’re pulling your hair and watching the stock plunge.
At Red Hot Penny Shares
, we’ll give you guidelines on what we want out of a trade…the potential gains, and how long we want to be in that trade.
Our aim is to bring you actionable information on little known JSE listed penny stocks and small cap companies. Companies few people know about. We invest in these companies before they become mainstream news…
The great thing is there are hundreds of these small companies with great products, great stories, and great prospects. They are in virtually any kind of industry. But what they all have in common is that they are on the verge of something very good happening. That’s what we’re looking for.
For tiny companies on the verge of something very good happening.
And right now, we believe the market is full of opportunity.
Three penny shares with massive potential right now
Penny Share #1 – an African mining giant in the making
Jubilee Metals was a purely exploration company four to five years ago.
But since then it’s been rapidly expanding its business. Today the company produces chrome, PGMs, copper and it is expanding into metals such as zinc, lead, vanadium, silver and cadmium.
The company’s most recent results confirmed that it has now achieved 7 consecutive six month periods with double digit revenue growth!
In fact, at its current share price the company’s PE ratio is 8.34 – so it barely looks like it has factored in the growth potential on this company yet…
But here’s the thing – Red Hot Penny Shares readers are up 152% on the company’s shares already. And I still rate it a BUY. No selling early on this one. In fact – with its latest project in South Africa and Zambia I expect the share price to DOUBLE again in the next twelve months. At the very least…
Penny Share #2 – A medical aid administrator bigger than Discovery, that nobody knows about
We all know Discovery is a market darling and the largest single medical aid in the country.
But did you know that a little company called Afrocentric Investment Corp is the largest medical aid administrator in South Africa. It actually commands more market share than Discovery does!
And this company is expanding rapidly.
In fact, only in the past two years alone it has acquired stakes in 4 ventures. It’s latest acquisition into a company called DENIS is particularly exciting.
Denis (Dental Information Systems) provides healthcare technology capabilities that offers dental benefit and dental claims risk management solutions. The acquisition also includes Denis Underwriting Managers – opening the door for Afrocentric to enter the insurance space itself…
The acquisition will cost Afrocentric R170 million – R153 million which was paid in cash immediately and the rest going into an escrow account for 18 months to ensure there aren’t any claims, legal costs etc against the business that are not covered.
The after-tax profits of this business were R34.8 million in 2019. That means this acquisition alone will add around 6cps profit to Afrocentric’s bottom line – or up to 90c to its share price following its approval in April 2020. The first full year in which results from DENIS will form part of Afrocentric financials will September 2021.
This business, with other ones Afrocentric has recently acquired forms part of the company’s strategy to own the value chain. From medicine manufacturing, to dispensing, to medical aid administration and health insurance…
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Penny Share #3 – Rapid growth as this company goes offshore
Argent Industrial (JSE: ART) is a small JSE listed industrial company.
Its main businesses are in the steel industry, supplying warehouses with overhead cranes, pallet trucks, storage systems, trolleys for shops, and gates and burglar proofing to homes and businesses alike.
Back in 2015 the company was mainly a local business, with some growing and some struggling businesses in its portfolio.
It then set out to get rid of, or turn around, struggling businesses. And more importantly it started diversifying its income streams by investing into businesses in the USA and the UK…
This strategy helped the company increase headline earnings per share (HEPS) from a mere 40c, to 104.4cps in 2019. That’s 155% growth in profits, showing their strategy worked.
And right now, the company’s still selling at a 65.9% discount to what it is really worth. Net asset value per share, a measure of the value of all the businesses and investments the company holds, sits at a whopping R17.46. The share price is at a mere R5.95 at a 65.9% discount to its real value.
The company is unencumbered by high debt levels, and is cash flush. What’s more, the business has gone from only about 20% of its profits from offshore sources to now being in excess of 60% offshore based.
Here’s to unleashing real value
Editor, Red Hot Penny Shares