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"Stocks in the Spotlight"

Published since 1990
"Equity Strategy Specialist"

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June 24, 2019

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Small Stocks With Too Many Shares
Are Bad News

Last Week's Closing Indices

52-week Index highs

52 Week Highs

The Markets Seem To Be Leaning Bearish!

My Best Guess
would be the brief drop to correction territory for about 5 of the indices may have run its course, although 3 of them are still in correction territory with 2 of them leaning to the big OTC stocks.

The markets had a decent rally this past week, but three of the indices remain in correction territory. The DJT, a narrow market, teaches us little, but the Russell 2000 and the SPREAD are both quite broad markets that tend to lean toward the big old OTC market.

The positive is just a few days ago we had over 5 indices and correction territory and now only 3 and with just a little bit of help in the near term the other three will climb out soon.

The rally this past week was blamed on the chance that the feds may decide to lower interest rates. It just shows that the market was ready to go up on just about any news although it had been showing some weakness because of the tariffs on Mexico.

According to many, the tariffs were supposed to be terrible for the market and terrible for the US but it turns out that it looks like Mexico's going the play the game. Apparently, when it comes to Mexico the tariffs were worse for them.

The markets seem to be moving on any kind of news having to do with politics but I don't believe that's really the case. It is because of the strong recovery over the last few weeks and credit for this goes to a growing economy. When the markets fall on bad economic news, we have to worry, but when there is no bad economic news the markets can't stay down.

This week opened with an economy that grew 3 1/2% in the first quarter and greater than all of the estimates. This is one big reason to remain bullish and I don't see many reasons to change. At this point I just don't see any poor economic news on the horizon.

The biggest problem right now is finding something that we can buy that has not already moved too far.

I have a rule that as long as corporate earnings are strong and interest rates are
low the markets cannot become bearish.
This only happens with poor corporate earnings and climbing interest rates.

I would use this current sell off as a reason to pick up more of a favorite or at least climb into the market so you can join the ride. Pick up a quality company with the low PE of which I would recommend Fonar Corp. FONR (PE is 6.35) or Intel Corp. INTC  (PE is 9.94). I believe having an opportunity to own stocks like this may not come again for quite some time and I also feel there's little downside.

I'm betting that the OTC stocks will outperform the blue chips once this correction has run its course. I believe we are just starting to see major benefits from corporate tax breaks and this should continue throughout the year.

Since I believe the big OTC stocks tend to lead the markets, it would help if the RUT would pull back out of correction territory.

Another positive might be the economy is still moving forward and there are no reasons to believe the recent sell off is anything more than a correction.

My rule is: The markets cannot rally very long without the big OTC stocks.

The DOW 30 chart below is an average of all 30 of the Dow Jones industrials and what percentage the total are away from the 52-week high. I use it as a measure of when markets are undervalued, or overvalued, simply because these 30 stocks are carried by just about every fund there is. Keep in mind, since it is a discount, the percentage can never be in positive territory.

The record for the discount to the 52-week high is - 2.87% reached on 1.8.2010. The maximum discount was  -52.76 on 11.20.2008 showing just how far this index can move. Currently the discount rate is -10.87%, meaning there is quite a bit of "wiggle" room to continue improvement, but the nearer the average of all 30 stocks come to the 52-week high the more overvalued they become. In 2016 there were 24 that reached a new 52-week high, 25 reaching a new high in 2017 and 26 in 2018.

This discount had been trading mostly between -9% and -22% so far in the last 52 weeks, with a recent correction (5 indices fell more than 10% from the 52 week high), then a breakout to the upside and back to the
-11% area where the markets stands now.

The fear of losing profits will be the reason forcing the markets down rapidly, which in an overvalued market is, and should be, expected. Nothing goes up forever, however the new tax cuts for corporations will make a big difference in valuations and provide much fuel for the bull to keep charging.

The trend is our friend and it appears to be leading the markets on a roller coaster ride but on the way to higher ground. The markets could continue this way for a few more months, but too high to fast and they will correct again.

We need to keep our cautious shoes on and tread through the bargains. Look for the deals and look at newer and start up companies and do the homework.

A best bet might be a small stock that reads good and offers a decent chance.
Small stocks tend to trade on their own and are not as sensitive to the overall market. It needs to be trading near the low-end but with a reason to climb.  Again, they are out there. We just have to search hard to find them.

Good Luck!

JR Budke


A Young Growing Company
We Do Not Want To Buy The Stock

  The company has issued millions of shares at the low!

Several months ago I was searching for a new stock and I came across one that I had felt, at the time, would be a great investment, but the tide turned against me and I decided to jump ship before I was dragged out to sea.

I found a young company in Canada that has it's own APP, which allows the shopping member to receive a refund on purchases from member retailer's. The company already had over a $million in revenue.

When I first found the company it had (if I remember correctly) about 25 million shares outstanding. At the end of 2018, after a (cheap) private placement it had about 40 million cheap shares out.

So far the story still has potential, but the total number of low-priced shares had approached my limit. Walla! Along comes another private placement at c.105 per share and the lowest price so far.

That last private placement (at that time) succeeded in removing any idea I might have of buying, but out of nowhere comes another private placement (just announced) at about c08.5.

The point is: There is so much dilution of new cheap shares, and more on the way, and millions of shares have traded under c0.12 that "lower" will be only direction the stock can go. It is called supply & demand and it will be quite hard to keep the demand high enough to eat up so much supply.

When speaking of low-priced stock it matters little what the fundamentals are but only the sellers versus the buyers. Market Makers, or in some cases Floor Specialist, do not read the news and do not care about what the company is doing. They only care about how the stock is trading.

When a company issues to many shares too low. This technically is cheating every shareholder that had already owned the stock at higher prices. When a new company does a private offering we should give them an opportunity to see how they use the money, but when they constantly do more private offerings they know they're cheating the shareholders and that's what bothers me about Penny stocks that continue to offer shares in their pursuit of cheap money.

When you have millions and millions of shares all at the same price, pretty much the bottom, you are making the market makers day. They can short the stock as long as they feel like it because there will always be a supply and this is why we want to avoid this kind of a company.

If they really have a future look at them again in a year and see if they've clean their act up but odds are they've gotten so much of a habit of spending the cheap money that they're going the more which just dig the hole deeper in every issue is lower than the one before.

Remember, not only do the shares outstanding tell us a lot about how the stock will trade, but any new shares that have been issued and at what price teaches us much more and allows us to make a better decision.

Remember, when supply and demand is the rule and you see too much supply look somewhere else.

Another problem with this one is that they eat money. Their wages cost to do business are exorbitant and this is why they constantly do private offerings. Like I said wait about a year.

In case you want to follow this company to see what I've been talking about the name of the company is Datable technology Corporation (DAC.V), a Canadian corporation currently trading between 6 and nine 9 Canadian.

Make this a lesson to remember. With low priced stocks it is is very important to know when shares were issued, how often and at what price. As far as the above example the stock is doomed to trade near the low for quite awhile. It's called supply and demand!

I have never seen a market so strong with so many big stocks trading so high as the current one. This is where "trickle down" economics comes into play as we trickle down to smaller stocks.

I am currently looking at several small stocks, but finding it hard to find a "winner" and as soon as I come up with what I think is a "real deal" I will let you know


From $1.75 to over $21.18
Advanced Micro Devices (AMD) (52 week range 9.04 - 34.14 )now at $29.10. AMD has been a big winner from our original buy at $1.75 to over $34 last September The $9+ low was in April/18.

AMD increased estimates for the Q and the stock has been trending higher. Strong news combined with a strong economy could keep this one to climbing. We could see over $35 this time up. Continue to hold with a best entry under $22.

From $0.27 (4.16.2007)  to over $33
Fonar Corp. ( FONR ) (52 week range 18.85 - 28.80), now at $22.06. I first started following Fonar in 1982 and have followed it every day since. Great products would be the reason to own this stock. I recommended the stock at$0.63 a few years back and it climbed to over $30. The current PE is only $6.44.

Total Revenues – Net increased 9% to $22.8 million, for the third quarter and 7% to $64.7 million for the nine-month period ended March 31, 2019, versus same period during prior year.

Income from Operations increased 50% to $6.6 million, for the third quarter and 21% to $18.1 million for the nine-month period ended March 31, 2019, versus same period during prior year.

Net Income increased 22% to $5.2 million, for the third quarter and 3% to $14.6 million for the nine-month period ended March 31, 2019, versus same period during prior year.

Fonar has been a favorite of mine for over 30 years. A strong growing company with an unusually low P/E in the medical product industry makes this company OK for anybody. The stock is trading close to the 52 week low.

I like the stock for entry anytime under $20, but still OK here.

Up From $22.10 to over $35 since February

Comtech Telecommunications ( CMTL ) (52 week range 20.95 - 36.94), now at $27.53. CMTL is a stock to own for the long term.

The only buy area that I like right now would be the $22 support level, meaning now might be a bit to high. The stock seems to be on a steady up trend and a continued strong market would lead to higher ground, with my target near $40. The current PE is 20.52.

In closing I would like to mention that one of the worst things we can do is buy stock in a young penny stock company that has already issued, or is going to issue too many shares too low in price.

The market makers love too many shares as it keeps the price low making it possible to short millions of shares, which prevents the stock from moving.

Finding a quality small stock "to buy" with not too many shares owned, near the low, will be very hard but once found the rewards can be plentiful.

If you have a situation, or questions, please feel free to contact me.

I wish you all good luck!

Remember, if in the right stock at the right time
the market direction will mean little!

I'm J.R. Budke and this is my opinion!

Stocks in the Spotlight

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J.R. Budke became a stock broker in 1981, an options principle in 1982 and a branch office manager in 1987 and a National Sales Manager over 150 stockbrokers. He is currently inactive as a stockbroker as of 12/31/99. J.R. writes the articles and opinions for the Stocks in the Spotlight. The stories and stocks found on this site, or any "Stocks in the Spotlight" written material, are the opinions of J.R. Budke unless other wise stated, and should not be considered as advice. You should not purchase any stocks solely on the opinions found on the "Stocks in the Spotlight's" web site or in any of its written material. You should also be aware that options are not for everybody and carry a high degree of risk.

The "Stocks in the Spotlight" provides information only, this is not meant to be a recommendation to buy or sell the profiled security, nor is this an offer to buy or sell the security.
The publishers of "Stocks in the Spotlight" are not investment advisors and are not acting in any way to influence the purchase or sale of the security. Before purchasing or selling any security profiled, it is encouraged and recommended that you consult a stockbroker or other registered financial advisor. The reader must understand that the companies we select may involve a high degree of investment risk. Potential investors must understand that they may lose all or a portion of their investment due to the risk involved.

The recommendations and updates in this "Current Up-Date" may include "forward- looking" statements as that term is defined in the Private Security Reform Act of 1995, & therefore are subject to various risks & uncertainties. There can be no assurance that actual results, business conditions, business developments, losses & contingencies, and local & foreign factors will not differ materially from those suggested in the "forward-looking" statements as a result of various factors, including market conditions, competition, advances in technology, acquisitions, potential litigation, personnel changes, capital availability, and all sorts of other factors.