It really shouldn’t matter a lick what price a stock is trading at. There is no fundamental difference between a stock with 1 million shares trading at $50 and a stock with 10 million shares trading at $5.
Then again, there are people whose interest is piqued when they see a low price tag. It’s one of the reasons why many companies will split their stock. The lower price tag will sometimes entice more buying.
When you consider the rule of large numbers, the phenomenon of lower-priced stocks rising faster than their higher-priced brethren does make a little sense. After all, for a stock trading at $5 to gain 50 percent, it has to rise only $2.50. But for a $100 stock, the same move takes $50.
Investors aren’t always rational, and that $2.50 move seems a lot smaller than a $50 rise — even though they are the exact same in percentage terms.
With this in mind, I wanted to share one of my growth stocks to buy and hold forever that’s trading for less than $5.
But first, know that I look for a very specific kind of company. By allocating just 20 percent of your portfolio to the "Next Big Thing," you increase your chances of making a lot of money in the stock market.
And I’ll be honest, there’s really no secret formula to finding game-changing stocks. The bulk of it comes down to a lot of research and making bold calls on where a company or technology will be a year, five years or a decade down the line.
The thing is that no matter how much research goes into an idea, there is never any guarantee it will be a winner. If anyone — even Warren Buffett — says he can guarantee you a certain profit in the market, you should run away… fast.
I know not every idea can be a huge success. That’s OK. But that doesn’t stop me from looking for the handful of potential winners that could soar hundreds or thousands of percent like Netflix (NFLX) or Apple (AAPL) did.
And where have I found some of the highest-scoring winners? Oddly enough, it’s been in stocks with low price tags.
A Tollbooth Operator For The Underground Energy Revolution
As prices at the pump start to inch higher — and that’s happening — there’s little doubt the Nation will again begin to look at alternative fuels. There was some hope that electric vehicles like the Chevy Volt would help. The trouble is, no one’s buying these cars, despite heavy government incentives. So with electric vehicles out, the real question is: What’s in?
That means answering one question: How can we get cheaper gasoline?
The answer is biofuel.
The Federal government has been interested in how it can wean the Nation off petroleum, which the United States must import. Of course, the shale boom is helping out with this problem, but that’s just part of the equation.
The best solution for an alternative, so far, has been ethanol. The pure alcohol is derived from the starch in corn that can be blended with gas, reducing the amount of petroleum the country needs to use.
Now, Federal support of corn-based ethanol has waned. But another type of ethanol, made from a different part of corn or another plant entirely, is still very much in play.
A key step toward the meaningful use of biofuels dates back to the George W. Bush era, when a bill passed that codified a Federal biofuel production quota into law. It calls for a range of biofuel — not only corn-based ethanol, but also sugar-based fuel that the Feds call "advanced biofuel." This is code for cellulosic ethanol, which comes from a type of sugar that’s found in all plant life.
This sugar is hard to get to. For much of recorded history, only animals—notably, cows — have been able to get energy from this type of sugar, which is locked tightly in the cell walls of plants.
But now, using specially designed enzymes, producers can "tease" out the sugar, ferment it into ethanol and make biofuel from agricultural waste like wheat straw or corn stovers, from special grasses or even from scrap wood and paper.
The companies in this space have been much maligned. For years, cellulosic ethanol and the idea of growing our fuel has been dismissed as pie-in-the-sky dreaming. But the science has caught up, lawmakers have embraced it and now a lot of major oil companies are bowing to the inevitable future of biofuel.
Luckily for us, there are plenty of game-changing companies in the space, and a few have prices less than $5 per share. My favorite is Dyadic International (DYAI).
Dyadic is a leader in the special proteins that refiners introduce to get the sugar-to-ethanol process going. The company makes the enzymes that tease out the sugar contained in all plant life; without its products, all you have is a pile of worthless mulch.
Dyadic’s business model is simple, but elegant. It doesn’t grow plants. It doesn’t build $300 million refineries. It simply sells the enzymes to the cellulosic ethanol producers and receives a royalty for each gallon produced. Dyadic is a tollbridge operator. And every gallon of cellulosic ethanol that leaves its customers’ factories has to pay the toll.
That’s also why I call it one of the best growth stocks to hold forever. Forever is a long time. But I’m confident that as time passes, Dyadic’s products will develop and new markets will emerge; and this little company will collect a royalty on more things than we can count.
Of course, with a stock that focuses on an unproven technology like biofuels, there are a lot of risks involved that could lead to a fall in share price.
But by following my 20 percent rule with stocks like Dyadic, you will limit that risk and potentially move the needle on your portfolio.
— Andy Obermueller
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