Dollare Store Securities

The past couple of years have shown us all that when people are unsure of or lacking confidence in the national or international state of the economy, spending decreases. Now, let's be real here; as Americans, we don't buy less so much as we don't buy as expensive. Everyone want to wear the latest fashions, have the newest iPod, drive a recent model car, and own big performing stocks. But when the markets crumble, lay-offs are threatening, and national debt is increasing, consumers and investors alike head to where the prices for comparable products are lower. This is confirmed by the escalating discount retail sector, such as Dollar Tree, Family Dollar, and other deep discounters. We begrudgingly go from shopping at specialty retailers in the mall to shopping at Wal-Mart. This allows us to buy just as much 'stuff', only at lower prices. And as I watch various industries and ticker symbols, I have found that the same hold true with securities. Of course this doesn't mean that everybody stops buying BIDU, AAPL, or CME, simply because they're expensive stocks, but it does mean that there is a lot more volume in cheaper stocks now then there was 6 months ago. I have seen the 10 day average volume slightly decline in stocks priced over $50.00, while the same average has increase dramatically for stocks in the $5.00 - $20.00 range. When I first noticed it, I thought it was just a daily imbalance, a fluke. So I began watching more closely to see if what I encountered was real. Over the last four months or so, I have tracked many different stocks ranging in price, sector, industry, and fundamental integrity. To my surprise, I was seeing that very phenomena. So, my assessment of this reaction to the market is that, first, many investors/traders had been burned by the Blue Chips and other over-priced shares as they fell from their towering heights; and second, the psychology of the bargain shopper has effected even those with expendable funds. Everyone love a great deal, that includes hedge fund managers. All those cheap stocks existed before the recession began, and most of them weren't effected nearly as bad as those that were in the limelight. Eventually, people began to realize that these 'penny stocks' weathered the storm better (only because there was little volume to begin with), and that maybe they are worth buying. Well, it's true that many are worth buying, and many are actually responding to the increased demand just like your Economics 101 professor told you they would.

There are many companies fitting this profile which are likely to benefit the investor. To know which ones they are is the difficulty. If you already own an online brokerage account, you probably have access to a screener or a filtered stock search. The ones to look for are those of any CAP size, who's earnings and return on equity are higher than the competition, and the price is under $20.00 (under $10.00 will give you more tech and med NASDAQ quotes, which is great). In my opinion, it matters little what industry or sector, yet some parts of the market have more momentum than others. I would advise steering clear of OTC BB trades, since getting in is far easier than out. Do not settle for average daily volume under 100K unless you are comfortable doing so. Look into the historical volume and see if it has increased since January 2009. Once you find some of these companies, you are likely to find that the volume has doubled and the stock price tripled or greater since the date referenced above.

I welcome any feedback. Please let me know if you like the material, or if you think I'm off my rocker.