The Reputable Bubbles: Don't be a victim to the System
A StockMastery look into securities that trade on the OTCC BB, NASDAQ, and NYSE

Ever get that felling that those 'upgrades', 'evaluations', and 'recommendations' by Wall Street's God-Like Analysts are just -- garbage. It's the culmination of the herd behavior trapped by the reputable listing of NASDAQ and NYSE securities, add a positive review by an 'Analyst', tack on a few purchases by 'guru' fun managers and watch the stock scream to new levels. But then they get it wrong, and watch the company get punished and thrown to the OTC BB over night by the same people that helped it climb to a new 52-week high the day before.

We trust the Analysts at Bear Sterns, AG Edwards, JMP Securities, Banc of America, etc... the list is endless. When they say 'upgrade' or 'downgrade', we cling to their advise and analysis as if we were a potential cancer patient waiting to hear the outcome of test results from their most trusted doctor. The analysts are not M.D.'s and half of them shouldn't be allowed to run a table of Puma Sweats at your local CSMA California Swap Meet. But yet we trade our stocks around their every words before and after every earnings call and they get to influence your precious securities' magical worth.

Hit the notorious and worldwide known American Home Mortgage Investment Corp. (Public, NYSE:AHM) now trading at 44 cents or the lesser known Health Management Associates, Inc. (Public, NYSE:HMA) and take a gander at their headlines on Yahoo Finance.

Many investors filed lawsuits after feeling they experienced fraud with regard to the corporate balance sheet. These are the investors who trash the Over-the-Counter Bulletin Board (OTC BB) stocks just because they trade on the OTC BB and defend NASDAQ/NYSE stocks due to the reputable, reliable and qualitative stocks. These 'reputable' titles act like a protective shield for them.

But you are comparing apples to oranges? No my fellow Masters, just making a point. The OTC BB is the slum or ghetto of the stock trading world, it gets zero credit, but my friends it just another trading grounds where potential stars and disaster companies can be found.

Here's the deal - all investors need to know how to evaluate a stock by themselves, you have no one else to blame but the man behind the wheel. Ignorance can be very expensive.

The "guru" analysts of the reputable financial home lender securities downgraded these stocks after the fact. Where were you guys before the corporate announcements?

I am not saying that trading OTC stocks is going to make you rich like Peter Leeds, it's just the research and analysis that has to be done to make the call. The OTC is a playing field where if you look hard enough, you can identify the guys that will cross over to be traded on the exclusive NYSE or NASDAQ. Take for instance China Industrial Waste Management Inc. (OTC:CIWT) - China's Modern King of Waste Management. That's a company and stock that has potential. Even you bought CIWT when I told you to at $3 a share it has room to grow. I do not expect the masses to be convinced and buy soon, CIWT belongs to OTCBB and the analysts at Bear Stearns or UBS could care less about them. You just need to have patience with CIWT and from my own analysis, which I believe in, I'm comfortable with buying shares and relying on my research to sleep through the night without worry.

Let's get back to a real example, take Bookham, Inc. (NASDAQ:BKHM) for instance. BKHM trades on the reputable NASDAQ, they are all about semiconductors and the infamous Jim Cramer has talked about the stock many times on Mad Money. Bookham's P/BV is still 2 and its P/E is constantly negative.
Why would I pay double than its stockholder equity for a consistently unprofitable company? Now if Bookham would be offered at a P/BV of 0.5 I would be allured to pick up a few shares.

My whole point is don't let the Analysts fool you just because they collect a paycheck from Bear Sterns and everyone else. "Titles" be it the 'Analyst' or 'NYSE' can hide the truth and mislead us to making decisions that are just accepted as 'industry standard'. If you can sleep at night knowing you did the research and regardless of where the stock trades, then you've made the right decision.

Article written by: Steve Reeves
Article posted on: August 9th, 2007