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The Biggest Stock Market News You Haven't Heard


On the evening of Friday, June 25, 2010
a major announcement from one of the biggest indexes in the world affected every stock in the market


Fellow Investor,

No one is covering this story. I know because I've been writing about it for the past few weeks, and so far it's me, a token headline from CNBC and a few bloggers who are paying attention to what promises to be a huge shake-up for publicly traded companies big and small.

What I've uncovered is that one of the largest stock indexes will soon add hundreds of companies to their ranks - while at the same time getting rid of just as many.

The implications?

Well, the last time this happened, stocks that got added to this exchange experienced an average one day gain of at least 8%.

Of course, many companies did much, much better.

Like Chesapeake Utilities Corp (NYSE: CPK) a $150 million company headquartered in Delaware.

It jumped 35% in the following three months after addition in June of 2008.

But it wasn't alone...

 
  •  Solutia Inc. (NYSE: SOA) shot up 35% in the three months after addition
  •  Materials company Unifi Inc. (NYSE: UFI) took a little bit longer to rise 113% in 5 months
  • Standard Motor Products (NYSE: SMP) jumped 123% after its addition in June of 2009.


My point is, if you can find out the names of companies that are about to get added to this huge index, you can stand to make solid profits in short order.

In this letter: I'll reveal the details on the three companies that I predicted would be added to this index and did (I'm 3 for 3 on this). And I'll tell you exactly how you can buy them today.

I must emphasize: these gains will come quickly, so you have to be prepared to act quickly.


What is this Secretive Index?

Most investors are well aware of the S&P 500 or the Dow Jones Industrials. Some people might even be familiar with the London FTSE or Japan's Nikkei.

Those are the stock indexes quoted by the mainstream media, and regurgitated by everyone from NPR to Time Magazine.

But when it comes to the whole story on publicly traded companies, they don't measure up to the often-overlooked index I'm talking about.

This index covers approximately 99% of publicly trade companies in the United States - but you rarely hear a word about them from anyone in the press.

If you do a search for this index on the websites of The Wall Street Journal, The Washington Post or The New York Daily Times, you won't read a single story about this major re-shuffling due to happen this Friday.

It's bizarre, but true.

I'm talking about the Russell 4000. Go ahead - do a search for it on any news site.

If you Google it, you might run across my name: Ian Wyatt.

As I said, I've been covering this story for the past few weeks - and I'm pretty much the only person in the whole investment world who's published anything about it.

I've been urging my readers to buy three small companies that I predicted would get listed on the Russell. All three made it.

What are these companies - and what makes me think they'll get added to the Russell?

How Small Companies Get Listed on the Biggest Indexes

It doesn't take a finance degree to figure out how small cap companies get listed on the Russell.  They publish this information publicly, and for the most part, it's a straightforward process.

These are the four basic criteria: 

1.      Be in the top 4,000 of U.S. companies by market cap, and have market cap over $30 million

2.      Trade on major U.S. exchanges – over-the-counter and pink sheets excluded

3.      Meet Russell's growth and price-to-book style criteria

4.      Have a minimum $1 stock price at the end of May


Every year, thousands of small cap stocks vie for what turns out to be hundreds of spots on the Russell. The trick in picking the winners isn't any more difficult than knowing the above four criteria and going through each possible candidate to find the companies with the best chances.

So why don't more people do it? Because it's time consuming, and takes a lot of attention to detail that most people don't have the time or energy to muster.

But it can be extremely profitable if done correctly.

Like in the case of Mako Surgical (NYSE: MAKO).

This company traded sideways for the 18 months leading up to being added to the Russell:

Since it was added, it's made 70%+ gains - with little sign of stopping.



If you look at the criteria, this company was a no-brainer to be added to the Russell.  Their market cap is well above $30 million.  They already traded on the NYSE.  Their price to book was well within normal ranges, and their share price was well above $1.

I've just pinpointed three more other companies very much like Mako that I'm fairly certain will be added to the Russell this Friday.

How do I know? Four reasons: 

  1. Their market caps are all significantly higher than $30 million.
  2. They're already listed major indexes.
  3. The price to book for each of these companies is almost identical to Mako's when they got listed.
  4. And they're selling for between $3 and $9 a share - well above the $1 criteria.


Are they a lock?

Certainly not...
but I put in the work and time, and got a little lucky.

The good news is that there's still plenty of upside. The one-day gain of 8% is already passed - but if you take a small stake in each of these companies, you give yourself an excellent chance to snag up to 396% profits (almost quintuple your investment) in the next 12 months. That profit turns every $10,000 stake into nearly $50,000...

That's what I discovered when I dug a little deeper. After an average gain of 8%, many companies added to the Russell index go on to make much better gains...

66%-396% Gains Come Between 6 Months and One Year After Addition

There are some "traders" who will jump in and out of new additions to the Russell to chase that 8% bump - which is great if you're highly leveraged or you're betting with someone else's money.

But the good news is that the best gains are attainable for any investor willing to hang on for just a bit longer.

Because these small companies also tend to be volatile, most folks will take the gains as soon as they come - but it truly pays to wait...

I've found that new additions to the Russell tend to make their best gains between 6 and 12 months afterwards. That gives the market time to shake-out the traders and the easily spooked retail investors.

It gives the companies time to truly benefit from their addition to the Russell - to get better access to credit markets, build brand awareness, maybe get some coverage from a Wall Street analyst or the mainstream media.

The Russell only adds these companies once a year - and the gains differ. For instance, in 2007 the best gains came closer to 6 months after making the index.

That's when companies like Shengda Tech Inc (NYSE: SDTH) saw 172% gains.



You can see how you could have jumped into this stock in late June for a 10-12% bump and sold in July, but the best gains went to those who waited...

It happened with Spire Corp, (Nasdaq: SPIR) a small technology firm out of Bedford, Massachusetts...



The best gains came months after the initial bump from addition...

But these are just two examples. Time and again in 2007, companies experienced modest one day gains followed by huge surges within 6-12 months of being added to the Russell.

Companies like:

  • Sequenom (Nasdaq: SQNM) a biomedical firm. Their stock price made 240% gains in just under 12 months
  • Zix Corp (Nasdaq: ZIXI) an internet technology company. If you held for 6 months you saw your shares make 149% gains
  • Insurance company Ebix (Nasdaq: EBIX) doubled in exactly 12 months


For 2008 the gains were similar:

  • Zion Oil and Gas was only up 8% after 6 months, but the stock rose 122% after 9 months
  • Orchids Paper (AMEX: TIS) was actually down 4% after 6 months. After 12 months, the stock was up 157%.
  • Questcor Pharmaceuticals (Nasdaq: QCOR) was the exception in 2008, as their best gains came after just 5 months:




2009 wasn't much different:

  • Revlon Inc (NYSE: REV) up 243% six months after addition
  • Pharmacyclics Inc (Nasdaq: PCYC) up 396% 12 months after addition
  • Smartheat Inc (Nasdaq: HEAT) up 109% 6 months after addition
  • Mindspeed Technologies (Nasdaq: MSPD) up 260% 12 months after addition
  • Heartware Intl Inc (Nasdaq: HTWR) up 168% after 12 months


The list goes on:

NYSE: DLA up 130% in 6 months...NYSE: CGA up 89% after 6 months...JOUT up 102% after 12 months... and so on.

You might be wondering if there's something these companies have in common... And there is...

The Best Gains in the Stock Market

All of the companies added to the Russell that I've mentioned are small. I'm talking less than $1 billion market cap - and most of the time they're under $500 million.

You'll notice that none of them are penny stocks or pink sheets. These are solidly profitable companies, with clean balance sheets and excellent prospects for the future.

And they don't skyrocket overnight - they take up to a year to see their best gains - that's the kind of slower growth you can reliably bank on.

While it might come as a surprise to you - these types of companies typically lead the broad market - especially coming out of a recession.

A recent study from Merrill Lynch found that in the 18 bear markets since the 1930's, small caps posted an average gain of 41.4% in the 12 months after the end of the decline, compared with an average gain of 32.4% for large caps. This impressive performance makes small-cap stocks among the most attractive investments after a financial downturn.

If we're entering a double-dip recession today, that makes the coming weeks and months the perfect time to buy these small cap companies, especially ones that were just added to the Russell.

That's why I've written a special report all about my three favorite companies that were added to the Russell.

If you're interested in finding out the names of these companies, I'd like to invite you to take a trial subscription to my research service all about small cap stocks.

I call it Small Cap Investor Pro - and as soon as you sign up for a risk free trial, I'll send you my full research report called "
Three Small Cap Additions for the Russell Small Cap Index."

Like I said, there's not much time to get into these companies before you miss their best  gains - so if you're interested, please sign up soon to receive my full report.  Just click here now and I'll expedite this report to you in the next 5 minutes.

If you're interested in finding out the names of these companies, I'd like to invite you to take a trial subscription to my research service all about small cap stocks.

I call it Small Cap Investor Pro - and as soon as you sign up for a risk free trial, I'll send you my full research report called “Three Small Cap Additions for the Russell Small Cap Index.”

Like I said, there's not much time to get into these companies before Friday's announcement - so if you're interested, please sign up soon to receive my full report.  Just click here now and I'll expedite this report to you in the next 5 minutes.

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Best regards,
 

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Chief Investment Strategist
Small Cap Investor PRO

PS - The clock's literally ticking on your time left to get into the Russell's three top contenders - but I want to briefly tell you about my favorite stock in this group.

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