Penny Stocks Alert: LDPP

Early on the morning of December 29th we counted more than a dozen stock promoters profiling penny stock LDPP (London and Pacific Partners) in what is likely to be the last stock promotion for 2011. This company is an advisory/consulting firm that focuses mostly on the healthcare and hospitality fields.

Anyway, some of you received other penny stocks newsletter mentioning LDPP this morning or may have seen the stock immediately rocket up some 300% right at the open and have contacted us asking us for our take on the situation.

While we don’t know much about LDPP we do know alot about stocks that gap at the open and have talked about this before:

You’ve got to be extremely cautious with stocks that gap.

Often times pent up demand for a stock will send it soaring right at the open before new investors have a chance to get in at the earlier, lower price. New investors pick up shares at the newer “gapped up” price and more often than not, as buying subsides, instead of the stock continuing to move upward it slips down to a range nearer to where it had closed the day before. On the ticker it looks positive and green for the day because after all the share price moved from where the stock had closed to a higher price, but for new investors that is no consolation because they bought in at the much higher gapped up price and are losing money. You will often hear on message boards the term “bag holder,” which refers to this situation.

And that’s the basic problem with stocks that gap: the chances are good you become a bag holder.

Some people will counter this argument by saying that stocks that gap do so because of pent up demand and pent up demand is good. Hey, the stock moved up dramatically with all these buyers and it could (should) keep on going, no? And yeah, it does sound good, but we rarely see it pan out in the real world. Nine times out of 10, a gapping penny stock at the open produces bag holders.

So while LDPP might be a good company, our take is the same as our take on all other gapping stocks, be careful.

http://www.damngoodpennypicks.com