Tucked away in a little-explored corner of the JSE are a hundred or more little known small cap companies. And it’s from this forgotten corner of the market that Red Hot Penny Shares readers have made returns like 142% on Adapt IT, 179% on Mpact and 111% on Quantum Foods in little more than 12 months!
There are many ways to uncover these kinds of shares but one of the key analytics I use to find these undervalued stocks is something I’ve coined the Small Cap Effect.
In short, it’s a particular pattern I’ve identified that shows you good entry and exit points on small cap and penny shares…
In fact, it’s this pattern I used to recently bank a 105% return on Sephaku …
And it is this same pattern that prompted me to sell Sephaku on 30 September at 264c. Today the share has dropped back to 230c.
Today I’d like to share this pattern with you – and show you how you can use it to get in and out on shares at the best possible prices!
The Small Cap Effect explained
Sometimes investors expect a penny share to rise in a straight line from the day it’s tipped, to a target price. But that very rarely happens. Usually a stock will head up, drop down a bit, move sideways and often spike.
And this speaks to a cycle they follow that I call the “Small Cap Effect”.
Let me show you:
Small cap shares tend to move when there’s news. In this example below, you’ll see how the share price shoots up when a trading statement is released and then increases even more when results are released. Then there’s a period of ‘No news’.
So often, if you’re looking to sell a share the best time to sell is typically a month or two following the big gain after a news update.
So, here’s a simple way of taking advantage of the Small Cap Effect…
1. If you expect outperformance from a share, buy a month or two BEFORE results are released.
2. If you want to add more shares to a position – wait for a month or two AFTER a results release to buy as the share pulls back on a lack of news flow.
3. When you want to sell at a decent level do it shortly following a results release.
Remember: Even though this is a real-life example, and I can show you ten others like it, it doesn’t mean this strategy always works nor that you should use it exclusively.
It works well as part of a successful investment strategy – and can help you time entries and exits better!
If you unsure about how to find stocks and time your entries yourself, then why not use our Red Hot Penny Shares research to do that for you? You can learn more about the service here.
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