Penny stocks are the stock market’s dirty little secret.

They get less respect than Rodney Dangerfield and Roman Turek.

In a bear market where most people hate stocks, nobody talks about them. Nobody writes about them.

Nobody, it seems, admits to owning them.

Worse, most Canadian penny stocks trade on the TSX Venture Exchange, the bush leagues of the Canadian markets.

Yet, there are some real companies behind some of those unloved penny stocks.

The company’s head office may be a musty basement in Acme, but that doesn’t mean the company will stay there.

Believe it or not, some of these companies have actual telephone numbers. Honest. We checked.

Although penny stocks are generally defined as stocks that trade under $5, we define them as stocks under a buck. Which seems reasonable considering how many large caps such as Bombardier (BBD.A) have been humbled and beaten down under $5.

While the penny stock’s claim to fame is in churning out 10-baggers, those pennies from heaven are few and far between.

One Alberta newsletter has managed to unearth a slough of penny stock winners in the past couple of years.

Hanna-based StreetSignal (www.streetsignal.com) has touted several wee companies that have doubled or better during this bear market by focusing on companies with a stash of cash.

Among the stocks StreetSignal featured in 2002 are Nova Gold (NRI-TSX), which has skyrocketed almost 1,200 per cent, from 35 cents to $4.11, since it was touted early last year. StreetSignal sold it at $1.20 – and who can argue with a 243-per-cent profit?

Of course, if your idea of portfolio diversification is chucking darts at the stock pages, you’re probably better off playing the tables at Frank Sisson’s Silver Dollar Casino in Calgary.

Aside from the upside potential of penny stocks, there are more cons than pros.

Penny-stock companies have been known to pump pure fantasy (remember VisuaLABS shareholders and the 3D-TV scam), many will go under and they’re hell to research. Furthermore, most are so thinly traded that filling an order can be a nightmare.

We admit to having a fondness for tarnished coppers, even after having courted a sexy play called Book4golf.com, one of the notorious dot-bomb casualties of the tech bubble.

So we think, in an age when the markets are saturated with indices and sub-indices, it’s high time somebody paid tribute to chopped liver by instituting a penny stock index.

So, without further adieu, we present the first Canadian penny stock index to challenge the majors – TSX Composite, the Dow Jones and the S&P 500.

Let’s dub it the Dirty Dozen (see chart). We’ll revisit our underdogs on a quarterly basis to check how they’re faring against the big indices.

The Dirty Dozen pennies will remain in the index until they hit a buck, at which point they’ll be ejected and replaced by a proper penny stock, or until they are mercilessly halted from trading or file for bankruptcy.

We chose the stocks with only two rules: They must have a telephone and their sole source of income must not be from online booking of tee times.

* SAGE WORDS: “Your odds of making money in penny stocks are literally worse than your odds of making money in Las Vegas. At least in Vegas you can make back some of what you lost gambling at the buffet tables.”

– Author Robert Sheard in The Unemotional Investor.

DIRTY DOZEN PENNY STOCK INDEX
Company Price 52-wk High/Low
Aventura Energy (AVR-TSXV) 0.42 (0.23-0.50)
Bioscrypt (BYT-TSX) 0.83 (0.71-2.05)
DataWave (DTV-TSXV) 0.15 (0.13-0.32)
Imaging Dynamics (IDL-TSX) 0.48 (0.23-0.90)
Int. Utility Structures (IUS-TSX) 0.46 (0.41-2.00)
Lorus Therapeutics (LOR-TSX) 0.84 (0.30-1.17)
Mainframe Entertain.(MFE-TSX 0.35 (0.16-0.52)
Moveitonline (MOV-TSX) 0.40 (0.23-2.00)
Maxim Power (MXG-TSXV) 0.25 (0.15-0.47)
Rubicon Minerals (RMX-TSXV) 0.95 (0.60-1.94)
Twin Mining (TWG-TSX) 0.33 (0.30-0.65)
Viceroy (VOY-TSX) 0.40 (0.15-0.46)


* Disclaimer: Investing in the Dirty Dozen may be hazardous to your health. The writer confesses to having sold his Book4golf shares at three cents.



HOT ALBERTA STOCK: Isotechnika Inc.
ISA-TSX $3.10
Up 52 cents (+20.2%) on 414,500 shares (for week ending Feb. 21).
Isotechnika stock has been taking a beating since it spiked 11 months ago on news of a blockbuster $215-million US deal with pharmaceutical giant Roche, but rebounded on brisk volume as investors await an update on Phase II testing of its lead drug, known as ISATX247. (For an interview with Isotechnika CEO Robert Foster, see 20 Questions in this issue.)



COLD ALBERTA STOCK: Brilliant Mining Corp.
BMC-TSXV 12 cents
Down 23 cents (-65.7%) on 12,500 shares (for week ending Feb. 21).
Shareholders were feeling a tad less than brilliant as the Edmonton diamond explorer fell out of bed to hit a 52-week low, 80 per cent off its 52-week high. The stock has averaged 450 shares per day in the past 30 days, so filling an order can be a daunting challenge.