Penny Stocks And A Financial Gravy Boat in the Land of the Lost

Economists and analysts have been waxing eloquence about the recession ever since it began; arguing about its genesis, when it started, when it will end, if and when the markets are going to bottom. Others have even argued about what the recession will look like years from now. Will it be a slow recovery or a classic "V Pattern"?

Last week a University of Central Florida economist said the recession most resembles a gravy boat. Sean Snaith said the pace of the economic downturn and expected recovery looks like the slanted handle, bowl bottom and prolonged spout of a traditional gravy boat.

"It has that shape," Snaith mused. "Forget the V-shape or other letters that economists talk about when they describe the economy. This will be a gravy boat recession with a steady and gradual recovery. After touching bottom in the third quarter of 2009, we'll see GDP slowly climb like a gravy boat's spout."

While the current economic downturn will not be the deepest since the Great Depression, it will be the longest recession and recovery period since then. But then again, not all recessions have to be Great…one is enough.

Still, Snaith cautions against a rosy prediction of a quick U.S. recovery amidst several encouraging (albeit mixed) economic signs; namely Americans' income and construction spending.

"Consumers may soon be back from the dead," Snaith explains. "But, as any aficionado of zombie movies knows, the living dead do not move very fast. Consumers may start spending again, but they will not be the driving force pulling us out of this recession."

That said, he also noted earlier this week that mixed signals are actually a clear sign of a turnaround. "It's the land of the lost between recession and expansion," he said. "As we approach the turning point in a business cycle we're in this netherworld where the data is negative then positive."

Mind you, with things so bad, it doesn't take much for Wall Street to be optimistic. Federal Reserve Chairman, Ben Bernanke, recently talked of the economy's "green shoots". Not everyone is so confident.

Bank of Canada Governor, Mark Carney, warned against excess optimism over "green shoots", saying there was no evidence yet of a sustainable global recovery. Saying it was important for countries to have valid exit strategies from stimulus spending; but, that they shouldn't be too hasty in pulling away stimulus money, especially without signs the private sector is pulling its weight to boost economic activity.

"Economies are going to grow initially because of the scale of monetary and fiscal stimulus, not in spite of it ... and self-sustained private demand is not yet there."

While the green shoots from the field of penny stocks does not portend the end of a recession, I have been noticing that a number of penny stocks have been bucking the trend of late.

Repligen Corp. (RGEN - Nasdaq) announced on June 11 that fourth quarter revenue for the period ended March 31 climbed 39% year-over-year to $4.59 million. Full-year revenue jumped 52% to $29.36 million. The company also ended the year with cash, cash equivalents of $63.96 million.

Aspect Medical's (ASPM - Nasdaq) share price has been on a tear. In mid-March this penny stock was trading for as low as $2.86 and in mid-May the company hit an intra-day high of $6.49 for a two month spread of 126%. In April, the company announced that first quarter revenue was up 4% at $25.3 million. Net income was $1.9 million, or $0.10 per diluted share, compared with a (loss) of ($235,000) or $(0.01) per share in the first quarter of 2008.

New video game releases and strong first quarter results have been helping Majesco Entertainment Co.'s (COOL - Nasdaq) share price gain momentum. The company entered March trading at $0.73 and on June 9 it hit a new 52-week high of $2.17; for a 3 month gain of 197%. On March 11, COOL said that first quarter revenue jumped 75% year-over-year to $32.8 million. Net income was up 55% at $4.2 million, or $0.15 per share.

Maybe not the kind of green shoots that Wall Street thinks will lead a global economic turn around…but they are the kind of companies that could make seasoned and new penny stock investors get off the sidelines for.