SMALL COMPANIES
What size is “small”? There are many definitions. Some people define a small public company as one with a market cap under $1 billion. Others define small cap as under $2 billion. And there are yet other definitions. Over the last two decades the word “small” has come to mean larger and larger companies! To confuse matters, NASDAQ’s small cap market system continues to list truly small public companies, many of which would be classified as nano-cap by the definitions, below. Here are some current definitions from Investopedia and Investor Words.
| Market Cap |
Investopedia |
Investor Words |
| Mega-Cap |
over $200 billion |
over $250 billion |
| Large-Cap |
$10 billion – $200 billion. |
$5 billion – $250 billion |
| Mid-Cap |
$2 billion – $10 billion |
$1 billion – $5 billion |
| Small-Cap |
$300 million – $2 billion |
$250 million – $1 billion |
| Micro-Cap |
$50 million – $300 million |
under 250 million |
| Nano-Cap |
under $50 million |
— |
Our practical definition for this page is as follows: Once a company trades for $10 per share or more and trades on NASDAQ’s 2 higher tiers, AMEX or NYSE we will not call it a small company.
Within our limited definition of “small companies” there still remain very large differences relevant to investing.
For example, if a company is on the OTCBB it is required to be a reporting company — that is, is submitting to the SEC its audited quarterly and yearly data plus all information important for investors . Therefore you can access its stock performance and financial data at servers such as Yahoo, Hoovers, Market Guide and EDGAR — right along side General Motors and Microsoft! SEC-reporting companies are required to comply with strict regulations relating to disclosure and accuracy. This includes the reporting regulations in Sarbanes-Oxley. An experienced investor has a chance to access the data necessary to decide if this company is a good investment. He also has reasonable expectation that the data is accurate.
If a company is on the OTCQX it, too, is required to be a reporting company; however it reports to PinkSheets LLC rather than the SEC. The Pink Sheets runs this premiium quotaion, trading, and disclosure service and makes the information available to the public. OTCQX companies do not need to comply with all the SEC disclosure regulations and can avoid the cost of complying with Sarbanes-Oxley, a huge expense for a small company. However, the OTCQX company must follow generally accepted auditing principles (GAAP) and have regular audits. Moreover, it must have an independent Designated Advisor for Disclosure (DAD), a professional “gatekeeper” for secondary market disclosure. The OTCQX is patterned after the London Stock Exchange’s successful AIM system for small companies.
Which disclosure system will investors prefer? Time will tell.
If a company is on the Pink Sheets but not on the OTCQX, and is not reporting, it is hard to get reliable information. Pink Sheets LLC does have 15-minute delayed stock data at PinkSheets.com and they offer an electronic real-time quote system designed for OTC agency traders, OTC Issuers, institutional investors, and other investment professionals. The service is offered on a password-protected basis through a standard web browser at OTCquote.com .
EVALUATING PINK SHEET COMPANIES
Companies listed on the Pink Sheets’ OTCQX tiers have ongoing operations and are the cream of the crop (see criteria, above). There are additional Pink Sheets categories to help you evaluate a company. From top to bottom they are: Emerging Growth, Adequate Information, Limited Information (yield sign), No Information (stop sign), Public Concern (skull & crossbones). These are summarized more in depth on the MicrocapLeaders.com History Page.
Following are some hints to help you interpret the information at PinkSheets.com.
- When you enter a ticker symbol into the form on the home page you will find the following information available: Quote, News, Charts, Company Info., Financial Reports and SEC Filings. Under the Quote tab you will be able to see whether the company is quoted as “Other OTC”, dually quoted on the OTCBB and Pink Sheets, or quoted just on the Pink Sheets. If a company is quoted as “Other OTC” it does not have a Pink Sheets market maker. If a company is dually quoted that means they are an OTCBB company, complying with Sarbanes-Oxley and filing with the SEC. You will be able to research it via EDGAR and, probably, major financial Websites. If a company is quoted on the Pink Sheets alone then it has a Pink Sheets market maker. Your best bet for researching may be the Pink Sheets Website.
- Under “Primary Venue: Pink Sheets” is there a note saying the stock is quoted Unsolicited? If so, that means brokers cannot suggest the stock to a client but sell it only if the client, independently, asks for it. This does not, necessarily, mean the company is bad. The market maker may have filed the required papers with the SEC to affirm that he has adequate financial knowledge of the company and asks to change sales to a solicited basis. He may simply be awaiting the SEC approval, which can take a long time. In the meanwhile, the Pink Sheets will continue to show the stock price as long as financial information is available.
- To look for financial infomation, click on the “SEC Filings” tab. Why would a Pink Sheets company be filing with the SEC and complying with Sarbanes-Oxley? If the company has over 300 shareholders of record (500 if only $10 mil. in assets) it MUST file with the SEC by law. Chances are the company is in the process of either finding an OTCBB market maker so as to get listed there or is reducing the number of shareholders of record so as to avoid Sarbanes-Oxley.
- Probably you will see no SEC filings or only old ones; so try the “Financial Reports” tab. An increasing number of companies are reporting via the Pink Sheets service. To keep their quotes posted at PinkSheets.com, Other OTC companies as well as Unsolicited companies MUST make their financial information available. In addition to (or instead of) the Annual and Quarterly reports you are familiar with, you may see an “Issuer Information Statement” and/or “15c2-11 Information Statement” (both the same thing). These contain basic information about the stock (for the benefit of brokers) but, optionally, may contain additional financial figures and are worth a look. You will also want to look for press releases under the News tab and yet more information under the Company Info. tab. The Company Info. usually has a link to the company Website which may provide a wealth of information.
- Financials posted at the company’s Website and under the Pink Sheets Financial Reports may or may not be audited; so remember to check for this. Companies in the OTCQX and on the Pink Sheets’ Emerging Companies List MUST be audited.
RESEARCH SITES FOR SMALLER COMPANIES
- At www.otcstockinfo.com the Pink Sheets offers a financial information repository for small business inssuers that are exempt from ongoing reporting requirements with the SEC. We are guessing that eventually this page may be integrated with the OTCQX.
- Knobias (pronounced “no-bias”) is a research site where you can access some tools free and subscribe to a large database of outside market companies including such markets as OTCBB, the Pink Sheets, and the Nasdaq SmallCap Market. Subscribe to their daily “SmallCap ClipReport” for free.
- OTCBB Trader is a relative newcomer offering a free trial of their up-to-the-minute data. OTCBB Trader has created and maintains the “OTCBB-100” Index. They also offer sector indices for OTCBB companies! The sectors are not based on the extremely broad SIC codes but have been created by OTCBB Trader to track the major industries represented in the OTC group.
- Small Cap Center run by StockGroup.com, which has aquired StockHouse.com.
In recent years there have been other efforts by web publishers to fill the gap left by not having a pink sheet trading site. However, compared to the audited figures submitted to the SEC by a reporting company (and hence passed on to the public) the independently published information can be scanty at best and unreliable, biased or untrue at worst. Although financial web publishing is a good idea, right now it is strictly “buyer beware” when it comes to the results.
If someone hypes stock in a thinly-traded, non-reporting, pink sheet company it is difficult to determine truth from fiction and to study the company along with its peers. Even if you decide the company itself is sound, what happens if you want to sell the stock? Other investors may hesitate to buy stock in a company they cannot easily research, track and trade.
Are there micro companies out there which are well run, pursue sound fiscal policies and which have outstanding, innovative, competetive products? Of course there are. However, investing is still a gamble. The company may grow into the next Microsoft. Or it may be bought by Microsoft to the advantage of the shareholders. Or, even more likely is a scenario similar to the (very short) animated feature “Bambi Meets Godzilla”. If the product is really good, it is likely that a large company will decide to enter the market and with their superior capital simply put the small company out of business.
And then there are unscrupulous traders who make money illegally at the expense of the public company and its legitimate shareholders by using naked shorting. For more details, visit the National Assn. Against Naked Short Selling (NAANSS), a group formed to help end this practice. For additional information, visit Our-Street.com, an anti-naked-short organization based in the UK,
We have attempted to categorize the links, below, as: Stockbrokers, Newsletters & Research Sites, and Investor Relations Firms. IR firms are obviously paid by their clients to present information on the Internet. However, among broker reports, newsletter articles and research sites, it is not always easy to determine if the site owner has been paid by the subject companies. owns stock in the subject companies, or, on the other hand is totally objective. . Consider that a newsletter-writing guru from time to time owns stock in some of the hot companies he writes about (unless he is a total idiot!); therefore his perspective on those companies may become skewed. Reading the site’s disclaimer is a good idea; however, lawyers tend to require that every client post a strong disclaimer. Therefore, this alone does not tell you how reliable the information might be.
How do you tell good information from doubtful information or an interesting gamble from downright fraud? Visit the following:
MARKET INDICES FOR SMALLER COMPANIES
A list of market indices specifically for Small Cap, Micro Cap and yet smaller companies (“Nano Cap”?) is maintained at Microcap Leaders.
MARKET MAKERS AND BROKERS . . .
. . . FOR PENNY STOCK, PINK SHEET AND SMALLER COMPANIES
These are stockbrokers who have indicated that they deal in smaller or unlisted companies, or who other people have said deal in penny stocks.
PUBLICATIONS AND RESEARCH ON SMALL COMPANIES
Some of these Websites say they try to be unbiased and objective. Some don’t say. Yet others are up-front about the fact that they are IR firms and have been paid to do a profile on the company. We have not attempted to separate electronic media from print media. In addition, there are a burgeoning number of financial industry conferences which archive presentations as Webcasts. Many are sponsored by brokerages while others are run by magazines or commercial organizations. A partial list is found on the “Talking To Wall Street…” page at IR101.net.
- Official Sites:
- The OTC Bulletin Board run by Nasdaq — This is the official site, with a wealth of information.
- The Pink Sheets LLC Website — This is the official site, with a growing bank of information.
- Full-Color Print Magazines:
- Equities Magazine — Equities has bridged the gap between emerging public companies and the investment community for over half a century. In the 1980’s the company was one of the first to sponsor corporate conferences, a role which has grown ever since.
- Red Herring — started in the ’90s as a review of companies going public, this magazine developed a wider scope including cutting edge tech developments, venture capital and smaller public companies.
- BDC Journal — launched in 2004, this magazine features articles of interest not only to people investing in business development corporations but to everybody following the emerging-company market.
Newsletters, IR Firms’ Profiles, Reports and Research Sites
- Microcap Leaders A sister site to Wall-Street.com Research site for microcap and nanocap companies.
- Microcap Gems — Free weekly email investment newsletter focusing on growth opportunities in the micro-cap markets.
- Peter Leeds — A leading penny stock professionial and his Penny Stock Insiders
- Subscribe to the Knobias SmallCap Sleepers for free.
- Investrend and Financial Wire — This company covers more than just microcaps; however it is one of the most respected company-paid-for analysis firms. Therefore it offers a lot of information on smaller companies not available elsewhere.
- Dutton Associaties – A leading provider of company-paid-for analyst reports on medium-sized and also smaller companies.
- Taglich Brothers – A leading provider of company-paid-for analyst reports on medium-sized and also smaller companies.
- The Bowser Report – By Max and Cindy Bowser. A long-running and well-regarded newsletter.
- Standard & Poor’s Company Sponsored Descriptions.
- OTCFN – Well-known writer Geoffrey Eiten’s IR firm. Provides company-paid-for profiles of nano-cap companies.
- Small Cap Review — Free in-depth profiles of small-cap and micro-cap companies. Free Newsletter, no membership required. Featured by the $57 billion Kemper Funds as a noteworthy site to visit.”When you need Real Research”
- Global Penny Stocks. Stock advisory newsletter for penny stocks (those under $5) available exclusively online.
- Pristine’s Free Sample — look for review of small caps.
- Canadian Micro Cap Review. In print and online. By Keystone Financial.
- Microcap.com
- Small Cap Market Watch
- OTCBB section of DailyStocks
- PurePennies.com — Some info. free, some with paid subscription.
- StockResearchCenter.com — Stock research site created by the publishers of the ECReports.
- EquitiLink
- OTC Journal — covers small and micro-cap stocks.
- The MicroCap Journal — emerging company news, reports and research.
- Penny Guide
- Allstocks Penny Section.
- Penny Stock Talk — This site claims to do unbiased research and also has many discussion groups (whose participants, of course, may or may not be unbiased).
- OTC Live
- Small Cap Network Free newsletter.
- Penny Stocks Network — Research and analysis of penny stocks and their markets.
- OTC Alerts
- All Penny Stocks. Delivering Canadian Stocks and Penny Stocks quotes, news and charts for every stock in the TSE, ME and CDNX as well as links to other world stock markets and stock picks.
- Wall Street Corner — Research and information on small cap stocks.
- The Red Chip Review — This publication follows several hundred smaller companies not generally covered and profiles several in each issue. Free examples are on-line.
- Market Digest Online
- The Online Investor
- Hedge-Hog Small Cap & Penny Stocks
- PennyInvestor.com — This site follows OTC-BB stocks trading under .50 per share.
- Penny Review — In-depth profiles of otc-bb companies that are likely to give above average returns.
- Roller Coaster Stocks
- AffordableStocks.com
- Traders Nation. Web TV and more.
- Emerging Company. A TV Program online. Interviews with officers of emerging companies.
- Top 10 Microcaps offering several Top 10 lists: medical, energy, technology, gaming and more. Some profiles paid and some unpaid.
- Small Cap Reporter — Newsletter associated with the “Top 10…” companies, above.
- DonPenny.com — Specializes in the field of nanotechnology.
- Stock Information Systems
- OTCInfo.net
- OTC Eagle.
- The OTCBB List.
- Next Wave at Core Communications Group
- Billington’s
- Inside Wallstreet
- R. J. Falkner & Company
- Market Pulse
- HotOtc.com
- Visit QualityStocks.netwhich is focused on the Small-Cap and Micro-Cap markets separated by the exchanges in which the stock trades, which include: Pink Sheets, OTCBB, and AMEX. They collate over 150 investment newsletters into one Stock Market Investment Newsletter Report, featuring a summary format in which you can view the latest stock picks every day. In addition, their monthly ” Stock Market Investment Newsletter Report” lists the best performing stock picks of the month and the newsletters that featured them.
- Visit Tip Reporter for reviews of several penny stock newsletters, links to the newsletters and summaries of their stock picks. They divide the stock pickers traced into two basic categories: Independent Newsletters and Corporate Profilers. Both usually reserve the right to buy or sell the stocks they feature.The Corporate Profilers are reimbursed in the form of stock and/or cash for all of the companies they profile, while Independent Newsletters also make uncompensated picks for which they receive no compensation.
The Independent Newsletters are: All Penny Stocks, Don Penny, Global Media & Corp. Rel., Insider Review, Market DD, MomentumTraders, Penny Buster, Penny Heaven, Penny Investing, Pure Pennies, ShellStockReview.Com, Small Cap Review, SmallCap MarketWatch, Stock Profit Picks, Stockprowler, StockUpticks.com, Tech-Focus.com, The Stock Guru.com, Value-Stock.com, Wallstreet Universe
The Corporate Profilers are: Hot Penny Stocks, Investor Ideas, Investor-Trading.com, Investors Stock Daily, Microcap Alliance, OTC Journal, OTC Live, Penny Picks, Penny Wizard, SmallCap Network, Stock Profilers, Street Insider, The OTCBB List, TheStockbroker.com, WinningStock.com
(Source: http://www.wall-street.com/small.html)
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