By Mauldin Economics. Originally published at ValueWalk.
With thousands of tiny stocks out there… how can I filter out the junk from the ones with truly huge, 500%+ potential?
As RiskHedge’s microcap expert, it’s one of the most popular questions I get…
And today, I’m sharing the easiest way to put the odds of success in your favor.
In short: The quickest way to compile a shortlist of tiny stocks with the potential to hand you game-changing profits is to apply this golden rule:
Picking Tiny Stocks
- Find tiny stocks that are disrupting LARGE markets.
Ask yourself: How big is the market this company is going after?
The bigger the better. It’s THAT simple. Although, for reasons I’ll show you, the size of a market opportunity is not always obvious…
Consider Amazon (NASDAQ:AMZN).
Today, most folks know “Amazon” is a trillion-dollar giant at the center of our everyday lives.
But back when it went public in 1997, it was worth just $438 million. It sold books online. At first glance, this was not a large market opportunity. There were only about 1.3 million books in print at the time. And many companies shared the market’s $25 billion in annual sales.
But from day one, Amazon founder and CEO Jeff Bezos had much bigger plans. His focus was always to help connect buyers and sellers using technology.
Amazon disrupted the massive multitrillion-dollar retail market with its e-commerce platform. It completely changed the way we shop. And although it wasn’t the first company to sell stuff online, it essentially invented the online marketplace.
Amazon was going after a truly huge market. Every person with an internet connection was a potential customer. In 1997, that was 70 million people and growing exponentially.
That huge market opportunity allowed the company to grow fast. And that growth turned into quite the windfall for Amazon investors.
Then there’s Netflix (NASDAQ:NFLX).
- Netflix disrupted the multibillion-dollar movie rental market with its internet-based business model.
Back in the ‘90s, Blockbuster was a massive force in the movie rental market. It had more than 9,000 stores and raked in annual revenue of about $6 billion.
Then Netflix came on the scene and did away with physical stores. This drastically reduced expenses and freed up money that it used to develop a world-class digital system to deliver content. Brick-and-mortar operations like Blockbuster couldn’t adapt quickly enough.
Netflix changed the way we watch everything when it introduced its streaming service in 2007.
Again, the market opportunity here was huge. Everyone who watched TV or movies was a potential customer.
Just like with Amazon, that huge market allowed Netflix to grow fast.
Today, about 220 million of these folks (including me) subscribe to Netflix. And the company now generates over $30 billion in annual revenue.
Netflix stock is down from its highs in November 2021, but it was one of the best-performing stocks from 2008 through 2021… turning each $10,000 invested into about $1.3 million.
That’s what’s possible when you invest in tiny stocks disrupting large markets.
And Amazon and Netflix are far from the only examples…
- Take eXp World Holdings (NASDAQ:EXPI), which I recommended to my Project 5Xmembers back in June 2019.
Think of eXp as the Netflix of real estate. It disrupted the massive $170 billion US real estate sales and brokerage market.
The company’s business is very similar to real estate companies like Keller Williams, Century 21, and RE/MAX.
These companies all provide real estate agents with offices, equipment, training, advertising, support, and sales leads. In exchange, they take a cut of the commission when an agent sells a property.
The difference is eXp doesn’t have physical offices. Instead, it provides support to its agents virtually.
This lets agents work with anyone, from anywhere, on anything, at any time.
All it takes is a computer and an internet connection. With that, you can log in as an avatar—an icon that represents you in eXp’s virtual world.
It’s like a video game, but for work.
This virtual world allows eXp to avoid the costs that come with physical offices.
And because the employee side of the business takes place in the virtual world, eXp can compensate its agents much better than other brokerages. It offers revenue-sharing opportunities and stock ownership packages.
The lure of more money gives agents a big incentive to join eXp. That’s led to massive growth in the number of eXp agents. And the more agents it has, the more money the company makes.
When I recommended EXPI to my members, it was worth just $600 million… or about one-tenth the size of the smallest company on the S&P 500 at the time.
But because the company disrupted a massive addressable market, it grew fast. And Project 5X members walked away with a 376% gain in just 16 months.
Of course, not every stock I recommend will perform like EXPI.
- But in Project 5X, my goal is to find tiny stocks that have a chance of 5X-ing or better.
My latest recommendation is perhaps one of the most promising so far.
Its lead drug candidate could upstage the best-selling drug of all time, Humira.
It does all the things Humira does, with none of the drawbacks. And its clinical trials are showing it could be a successful treatment for Alzheimer’s disease.
The last time a company had an Alzheimer’s disease drug FDA approved, its valuation jumped by nearly $20 billion. That jump would be equal to 156X the value of the stock I recommended.
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Article By Chris Wood, Mauldin Economics
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