OT/ Latest ploy: penny-share scooping - Retirement money may move into smaller indexes
By Thom Calandra, FT MarketWatch.com
Last Update: 4:27 AM ET Jan 24, 2001
LONDON (FTMW) - Whoever said the January effect would skip 2001 is guilty of defective forecasting.
Small and medium-sized shares in the United States and Europe are having a splendid January. The Standard & Poor's Small-Cap Index of 600 shares (SML) is up about 8 percent since Jan. 9. The broader Russell 2000 Index of small companies -- those with market worths of less than $2 billion or so -- has risen about 10 percent. January also has been very good for the tiny companies in the Merrill Lynch European Internet Index.
New figures show a wall of cash sitting in money-market accounts and retirement accounts in the United States. One survey by Fidelity Investments, whose mutual funds some say account for a third of all Nasdaq traffic, forecasts 41 percent of those saving for retirement will boost their 401(k) tax-sheltered contributions this year.
Across the pond in Britain, some analysts say retirement accounts could send 20 billion pounds, or about $30 billion, into the U.K. stock market this tax season. See the story.
The latest ploy among daring investors is penny-share scooping. Amid the tech wreckage of last year, almost 300 Nasdaq stocks, many of them Internet IPOs, had fallen beneath $1 a share as of Jan. 2. The new crop of penny stocks, if they stay at low levels, faces delisting from the exchange.
In Paris, where I spent time earlier this week, the numbers of walking wounded leave some astounded. "I think it shows that many of these companies never should have gone public," said Virginie Robert, who edits the new Les Echos.net, a weekly technology supplement to the leading French business newspaper. In France, delistings of companies happen far less frequently than on Nasdaq. Even troubled companies on the high-growth exchange Nouveau Marche trade until the bitter end, which is usually receivership, liquidation or a firesale.
Nasdaq's walking wounded, however, are a trading opportunity for kamikaze investors. Even with the threat of a delisting, executives at some companies easily could step in and buy shares, providing a brief boost.
The real test will come after many of these companies report their quarterly figures in the next few weeks. In the United States, insiders are generally prohibited from trading their shares until two days after their quarterly reports are released to the general public. After that, the shares are fair game for insiders.
It's a risky strategy for individual investors and executives. Even if the penny stocks do rise above a buck-a-share, Nasdaq could still pull the plug. But as one big insider told me the other day, "At this point, who cares. We see our stock as a big bargain, we're not going to sell out at this level and if we have to, we'll take the company private."
The best pickings are among tattered companies that have enough cash to weather the next year, or are close to breaking even or turning a profit. These include Bankrate.com (RATE) and theglobe.com (TGLO) .
Clearly, investors already have been playing the pennies, with some success. Shares of Internet software seller Beyond.com (BYND) traded for 14 cents at the start of the year. In the wake of a quarterly report that shows a slower cash-burn and a forecast profit by early next year, Beyond.com shares on Wednesday likely will trade above $1 for the first time since Oct. 11.
Investors must hope that such companies can maintain their momentum, and keep their speculative shareholders, for more than a 50-cent pop in price.
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