Editor’s Note from Charles Sizemore: If you’re new to The Banyan Edge, you may not know that Adam O’Dell managed institutional money before he got into helping everyday Americans in the independent publishing space. The hedge fund he founded, in a nutshell, went long high-quality assets and short low-quality ones.
Matt Clark, Editor of Stock Power Daily, sat down for an interview with Adam to discuss his career before becoming an independent publisher. They’re talking about a subsect of “blacklisted” opportunities that are exclusive to individual investors.
You’ll learn about these stocks in today’s interview…
But make sure to stick around for the end. You’ll find out how you can access a pool of 298 hand-picked “hedge fund blacklist” investments — which Adam will systematically cut down to only the top opportunities in the weeks to come.
Matt: Adam, thanks so much for sitting down with me today! I understand you’re releasing a brand-new free research report. This isn’t something you do very often … so why don’t you tell us a bit about it?
Adam: My pleasure Matt. And yes, I’m very excited about what we’re doing.
You see, I believe it’s crucial to focus on the small-cap sector right now — especially quality small-cap stocks that are now trading at attractive prices.
The bear market has beaten down these stocks. But historically, high-quality small-cap names have dominated in the years following a down market and recession. That’s for a number of reasons, which we’ll get into … but the biggest one to remember is that small-cap companies are nimble. They can more easily steer the ship when the tides change.
I’m not here to say that the bear market is over. The jury’s still out on that. There’s a lot of excess capital from the pandemic bubble that this market needs to work out.
But that also doesn’t mean you should try to wait and time the bottom. The bottom is only obvious in hindsight. That’s why it’s so important to start deploying capital in cheap, high-quality small-cap names now … even if there’s more volatility ahead.
Matt: How do we know what stocks to target though?
Adam: It comes down to the number five.
Specifically, the $5 level.
Due to a frankly ridiculous rule from the SEC, established over 100 years ago, major financial institutions have to jump through a ton of regulatory hoops to invest in companies that trade below $5 per share.
Regardless of the stock’s quality … its fundamental strength … or its balance sheet.
Anything under $5, and they can’t touch it.
In fact, if they’re already exposed to this stock before it trades under $5 … they’re forced to sell it!
And there lies our opportunity.
Matt: So you’re telling me that if a hedge fund holds a stock at $5.01, and the next day it trades at $4.99, they’re forced to sell it?
I have to imagine that causes a lot of selling pressure in the stock. These hedge funds often hold thousands, if not hundreds of thousands of shares at a time.
Adam: It absolutely does, Matt. It’s absurd. But since we’re not major institutional players, we can exploit this strange rule for all it’s worth.
Matt: How did you discover this, Adam?
Adam: Our readers may not know this, but before I was an independent publisher, I worked in institutional money management. I witnessed firsthand all the rules and regulations hedge funds have to follow.
And don’t get me wrong, those rules are in place for good reason. For example, my fund traded in the futures markets. That’s a big money arena — with leveraged positions that can control millions of dollars’ worth of assets at a time.
It requires highly conservative risk management. Prudent position sizing, analysis of correlations across the portfolio and stop-losses are all a must to survive.
This experience is actually what prompted me to develop the Stock Power Ratings system — which our readers should be well familiar with by now.
It’s a six-factor stock rating model that scores a large majority of the stocks in the market from 0 to 100. The higher the score, the more likely that stock has historically shown to outperform the market — by 3-to-1 no less — over the following year and beyond.
I developed this system after seeing firsthand the benefit of a systematic, quantitative approach … like the one I used to manage institutional money.
For our purposes, I’ve taken the Stock Power Ratings system and applied it to stocks that are affected by the SEC’s $5 Rule.
Matt: And that’s how you’ve put together the report?
Adam: Correct. This research report identifies 298 stocks that currently trade under $5 per share.
Each of them are ripe with potential to exploit this $5 dynamic.
But of course, I don’t expect anyone to buy 298 stocks. I don’t hold anywhere near that in my personal account … and I don’t know anyone who does.
That’s why, over the next few weeks, I’m going to use the Stock Power Ratings system to whittle these names down to only the ones with the highest potential for huge gains this year.
Typically with the Stock Power Ratings system, we can expect stocks with a bullish rating to beat the market by 3-to-1 over the following year — and many have risen 100% or more in just six months.
But these stocks … these $5 and under names that the major institutions can’t trade, even though they’d love to … I believe they can go so much higher.
When all’s said and done, we’ll whittle this list down to just a handful of stocks that I believe will return 500% or more over the next year. Bear market or recession be damned.
Matt: That’s super exciting Adam! And I just want to emphasize how great it is to be an independent publisher.
Financial planners, money managers, brokers … they aren’t able to share such unique opportunities like this. Heck, they aren’t incentivized to! They just want to take their fee and stick their customers in the most boring, low-performing assets available.
I love how much value we’re able to bring to people by breaking down those barriers.
Adam: I couldn’t agree more, Matt. Even better, we’ll teach people exactly how to select winning stocks as part of this process. As this bear market continues, I don’t think there’s any skill more important to learn.
Matt: Thanks again for talking today Adam, it was a great conversation.
Adam: Thank you for taking the time, Matt.
If you want to Adam’s $5 Stocks to Watch Now free report, enter your email on this page. You’ll get a copy in your email instantly.
Then, stay tuned for emails from Adam as he trims down the list in the weeks to come.
You’ll get to see a lot more on this topic in The Banyan Edge and Stock Power Daily over the next few weeks, so be sure to tune in!
Chief Editor, The Banyan Edge