It always pays to check out the competition...
Imagine the scenario...
You're about to part with fistfuls of wonga, only to discover the little gem you've uncovered is no more unique than a pair of white stilettos in Essex.
What seemed like a great idea at first isn't the sparkler it looked to be.
Why?
Because every man and his dog on the street are in on it...
And that brings me to the greatest secret of all when hunting down the penny shares that will make you the most capital on your returns.
You need to uncover the unusual story, or product that makes one company rise above the rest... that special something the gem start-up owns, is cultivating, championing - the very thing that satisfies a demanding public's endless need.
Find the company with a product which sells and you're onto a winner.
That’s what I look for in smaller companies... something with little, or no competition, that most investors are unaware of.
Another beauty of investing small caps is that they give you an idea of how well the markets are doing in general... whether the bears or the bulls are winning the battle for the market's direction...
The infantry of the economy
You can take AIM's yearly average and see how they are doing as a group. It makes it easier to compare small caps to, say, the FTSE 100.
Because small-cap stocks are often growth stocks and highly volatile, they can be a great leading indicator of a broader rally in the wider share market.
From a business perspective, it also makes sense...
Small firms are the infantry of the economy... the front line. They're the most sensitive to changes in business conditions.
When the economy is growing, small firms see it and profit from it first. That’s why investors love to scoop up small cap shares at the end of a recession... They know that small cap stocks will rise as the fortunes of small-cap companies improve.
But for the really, really big gains you need to pinpoint a mood of change. Identify the companies that can offer the world what it wants. That way the demand will always be high.
And the current mood?
Just look at the headlines recently.
The question everyone's asking is how we are going to drastically cut carbon emissions while at the same time maintaining our standard of living, both socially and economically.
Well, I spotted a little company on its way to helping eradicate a large proportion of the noxious gases being released into the atmosphere every second of every day.
The main area of this neat little business is to enable heavy-duty diesel engines to operate using a technology that is fully patented. It works by allowing the engines to operate mainly on natural gas, creating lower and less harmful emissions (CO2 is reduced by 25%) without losing any of the engine’s capability.
And as the price of diesel continues to the sky their technology is looking more and more attractive, particularly as it can save companies as much as £11,000 per truck per annum in reduced fuel costs in the UK.
Competition can often be a problem for smaller companies, but these guys are confident that they are unique in this market
They're currently unaware of any dedicated natural gas trucks that can match their truck for efficiency and performance.
And this is further demonstrated by the fact that more than 50 customers including large conglomerates such as United Parcel Service, Disneyland, Warburton’s Bakeries and Co-operative Retail Logistics (in Derbyshire and Scotland) use it in over 1600 vehicles worldwide.
They announced that one of their trucks will operate as part of Tesco’s distribution fleet, which will continue until the end of the year - if successful they may introduce more vehicles. As their Chief Executive recently stated: “This is a major milestone for the company and we look forward to results in early 2007.”
So what does the future hold for this company?
Well, who am I to know until it happens, right? What I do know is that they're currently working on a new fuel, which will hopefully reduce Nox emissions by a massive 80%, meanwhile reducing CO2.
The directors believe that it could be applied to engines by 2010... So watch this space.
This is exactly the type of potential investment I'd be looking out for.
Until next time,
Melissa Carroll
for The Penny Sleuth
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