Favorable recommendations from investment newsletters can have a measurable impact on small and micro capitalization companies, resulting in immediate price appreciation and increased trading volume. The addition of this credible third-party endorsement adds significant value to emerging companies that often have little or no analyst following. There are an increasing number of newsletter editors who focus on smaller companies due to the segment’s exceptional potential for high returns. Most editors are more than willing to review new ideas from corporate and investor relations professionals, if the companies presented meet their investment criteria.
The vast majority of financial newsletter editors whom I have come in contact with are seasoned investment professionals with years of experience as institutional money managers, securities analysts or retail brokers. In many cases, the returns generated by their recommendations far exceed the performance of top-rated emerging growth mutual funds. For example, The Bowser Report has a compounded 5-year return which has significantly surpassed the returns of most mutual funds.
It is important to recognize, however, that like everyone within the financial community, these professionals are busy. Understanding their investment criteria and interests – and respecting their time – is critical to introducing ideas and generating coverage. The “numbers game” of sending a form letter to every newsletter in the book simply doesn’t work. A specific and targeted approach is required.
The first step is to identify appropriate financial newsletters. An excellent source of small capitalization and other financial newsletters is the Hulbert’s Guide to Investment Newsletters, which reviews some 200 advisories, lists telephone numbers and contact information and offers helpful content that defines the editors’ criteria. The Dick Davis Digest is a bi-weekly publication that prints excerpts from newsletter recommendations, offering a flavor of a number of the editors’ criteria. Finally, Investor’s Business Daily features a National Newsletter Review section every other Friday which lists advertisements and offers free samples for a number of financial newsletters. Utilizing these sources, it is fairly straightforward to derive each editor’s investment style and interests.
The benefits of pursuing this segment of the financial community are numerous:
First, financial newsletter editors are often very aggressive, and are willing to invest in and recommend smaller companies that traditionally fall below “the radar screen” for most brokerage firms. While it is not uncommon for George Southerland’s Special Investment Situations or the Kon-Lin Letter, two respected small stock advisories, to recommend a $2 stock with strong potential, the task of attracting significant brokerage research for companies in the $2 range is more time-consuming and cumbersome.
Second, like securities analysts, newsletter editors are frequently quoted in newspapers and magazines and act as a third-party endorsement that adds credibility to any company’s shares. Newsletter editors also frequently offer a credible earnings-per-share or share price target that can enhance valuation and gives investors something to hang their hats on. In addition, most newsletters comment on prior recommendations in each issue, providing a constant source of updated recommendations and follow-up of your firm’s progress.
Third, and most importantly, favorable recommendations generate immediate buying. Given that subscribers (primarily individual investors) pay anywhere from $50 to $250 annually for small stock recommendations, they usually listen and respond accordingly. When one of my smallest Nasdaq listed clients was recommended by a highly respected microcap newsletter last October, the company’s stock price rose more than 70% in one day! Volume for the company has trended up substantially since the initial “buy signal” and another investment newsletter recently recommended the shares at the new base, nearly 80% higher than the first recommendation. Each new recommendation attracts a new ownership base and provides added liquidity to the shares.
In the final analysis, the most important advice that I can offer is to research the newsletter universe thoroughly and to introduce your company or clients selectively. Use a targeted approach that demonstrates that you have taken the time and effort to research each newsletter and only after doing so, send the editor some basic company information. In your correspondence, you might suggest that, for example, “ABC Corp. might be of interest, given your prior recommendation of XYZ.” Be concise, responsive and courteous. And, if you are fortunate enough to generate favorable recommendations, be sure to thank the editors and provide them with timely updates in the future, as their readership base will expect them to stay current on the company.
Kent J. Broussard has extensive investor relations experience working with companies in a wide range of industry sectors, including entertainment, environmental, employment services and computer technology.