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I will try to keep this post to a minimum. This post is not designed to criticize other traders/investors strategies or outlooks. I base virtually everything I write about on personal experience. My experience, though not perfect, has landed me in a pretty good place. The reason I think it has is that I try to apply common sense, good analysis, and when necessary, technology to investments and trade opportunities of all kinds.

Over the last 35 years, I have gone through many phases as an investor and trader. In the early eighties, I used to do hardcore research to find companies that, while trading at really cheap prices, had very unique and perhaps patent protected proprietary technologies that would mean revenue flows that would keep it going for a long time. One of those I found was KV.A. (KV Pharmaceutical) back in 1982 that was one of the originators of both mechanical and tablet based drug delivery systems. For some reason I can only get chart data back to 1997, but it was the best performing NASDAQ stock of the 1980s! It went up another 1500% in the last decade. Since that time, KVA was involved in a huge government action with the FDA over operational practices that basically destroyed their business. It is still attempting to recover from it.

When I used to position trade exclusively, my broker told me I was the "King of the Under 10 Dollar Stock". I really was. I had a knack for finding the unrepresented gym that exploded into something far more than anyone anticipated. I have found scores (Yes, I mean groups of 20s) of stocks liike that over time. They are always out there, but it takes time to find them.

But in most cases, if a stock trades under 5 dollars, it has a really hard time coming back. The reason for it is that most institutions do not want to hold a stock that might be difficult to unload or is under-represented with market makers. Look at what institutions have done with the stock in the last few months. Needless to say, KV.A is NOT getting a lot of love out there.

ABOUT STAR BULK CARRIERS CORP (SBLK):

What about SBLK? I could find no strong corroboration on the 6000+ percent sales growth. Since SBLK is a dry bulk shipper, it has faced the ravages of the world economic slowdown.There is also a problem with using percentages to bloat the perception of growth. You could only have sold $1 of business in one quarter and sold $64 dollars in the next. While that still represents a 6400% increase in sales, the banks could still foreclose on your storefront.

That sounds like BS (bloated sales lol), but let us look at what I think is a decent encapsulated way of checking fundamentals. If you have Quicken (and if you have a business, you probably DO have it), let me show you a screen shot of something that I think puts it into perspective. Their portfolio analyzer is a good tool. You get it for free if you have Quicken or other Quicken products.

Read the three (Part 1 Part 2 Part 3) parts I have shown that Quicken provides for SBLK. The fundamentals are a bit uncertain, though cash flows are increasing. Part 2 shows that return on equity, while at the low end of the industry range is pretty decent at 23.9%. The company indeed seems to be striving to keep their contract shipping going, despite the world economic downturn.

If you look at Part 3, in which discounted earnings growth is applied to industry growth rates, the stock has a target price of over $12. My near free cash low target estimate is about $8.40. Which one is right? I haven't a clue, but there does seem to be evidence that appreciation is certainly possible and that it could be quite decent as along as market conditions (and business conditions) improve.

If you want further evidence, try going to the website. Want to know how to do that? Go to MSN Money and click on Company Report. You will find the website for Star Bulk Carriers (SBLK) at www.starbulk.com. Read the press releases. Look what I found with regard to sales commitments for SBLK. Basically what the article says is that 2009 sales are fullly contracted and that 71% of NEXT years is booked. That's pretty good for March. But what is the operative word in that sentence? Yep, MARCH. That was a discussion of last quarter's commitments. Earnings should be out soon. Where can I find out when they will be announced? Here. Earnings will be announced August 11, 2009 AFTER the close.

Institutions, as of the last reporting period, have no love for SBLK. To get a closer look at that, you need to consult weekly data from Investor's Business Daily to find institutional accumulation data. It is reviewed at least weekly there.

At that time we will likely hear about sales commitments for 2010. If that looks good (and are fully committed) I think the chances are decent that the stock could hit at least $8. WILL IT HIT EIGHT DOLLARS? We cannot know with ANY certainty. That is why one has to look at the charts and find some decent entry point.

Let me show you what I think could happen to SBLK in the near term. Look at the daily chart as I have marked it up. It is oversold and could rally, but that impulse leg up from March 9 could indeed hit resistance and bounce off as shown here. There is at least some risk that if market or business conditions appear weak that this stock could trade into Fibonacci confluence from between 2.89 and 2.10. That is quite a bit of risk if one is buying it at 3.645. If you buy at 3.645, you would be risking a little over 57.6 percent of your capital (not including commission) if it were to trade back to that level. There in lies the problem with trading stocks under 5 dollars. Volatility in the course of holding these positions can eat up capital much faster than with a stock at 20 dollars.

Conclusion:

If we get some confirmation on sales commitments for next year that match earnings estimates, SBLK has a decent shot at moving higher (perhaps to 8 dollars in the next year).

I have no clue about 6400% increase in sales, but what I do know about published growth rates, sales, and cash flow data that the company seems to be recovering from the world economic malaise in decent fashion. From my pattern persective I would be looking to purchase this stock in the mid to high 2s and not chasing it here. One reason I will not chase it is that I see these set ups every day and I will find another one tomorrow. Because I have strict entry criteria, I will not chase anything. If I do not get my set up, I move on.

For me, I want to see institutions get excited about this stock before I own SBLK, but I would put it on a watchlist. Trading it is likely risky, but that is a function of your trading style, risk management, and trade discipline.

There are great traders out here on StockTwits, like upsidetrader, kuna100 and the like. Many do trade low priced names. If you saw upsidetrader on StockTwits.TV though, you realized one thing. Before he trades what he trades, he spend HOURS studying the set ups. I am sure that alphatrends, stevenplace, and tons of others do the same. You must be prepared to DO YOUR OWN HOMEWORK and not rely on CNBC, Bloomberg, Fox Business or any other outlet to make that decision for you. All of the folks I mentioned in this paragraph are professionals. Why are they professionals? Because there is discreet structure and reasoning behind ALL THE TRADES THEY MAKE. It has nothing to do with a degree on the wall or a Series 7 license. It has EVERYTHING TO DO with the desire to maximize profit potential and minimizing RISK.

If you are not willing to do at least what I have demonstrated to you as a prelude to trading a set up on stocks, I would advise you to stop and make sure that you go through a routine to learn how to do it. If you truly love doing this, then you truly love doing it well. Doing it well takes commitment and a desire to gather as much detail as possible prior to putting on a trade, long or short.

For the low priced stocks, it takes sometimes triple the effort, because most of the stocks are under-represented and often misrepresented, which is why the stocks are priced at a level below 5 dollars. I trade highly liquid, highly followed stocks over $10. That universe is easier to study than the ones under $5. However, I have just demonstrated to you the power of finding GOOD STOCKS UNDER $5. They entail high risk, but can produce high reward.

Your job, as trader and investor, is to screen out the hogwash and find the gems. If you are willing to do the work, you will benefit from it and receive the rewards, which can be magnificent.

I must now retreat to fixing the office and doing my tree farmer thing again. I will be back to full strength soon. I hope this helped.