Blog : Third Level Analysis

by Peter Leeds on March 23rd, 2012

As Peter Leeds subscribers know, Leeds Analysis to find the top penny stocks is 80% fundamental analysis, 10% technical analysis, and 10% third level analysis.

The top question on your mind right now may be what exactly is Third Level Analysis and how does this help me find top penny stocks?

Third Level Analysis in penny stocks is NOT something you will see anywhere else, especially in stock analyst circles, and certainly not in relation to penny stocks.  However, it is one of the top tools we use to research penny stocks.

Third Level Analysis is a review of a penny stock's branding, positioning, differentiation, and marketing.  

Top Branding in penny stocks:

When you think of cola, what company is at the top of your mind?  If you were buying cola, would you reach for that one first, and pay more?  You know what?  Most people would.

When you thing of fast food, which are the three top or four top outlets you think of?  Would you bypass others in favor of those that come to mind?  Most people would.

This same idea is true on a smaller scale with top penny stocks.  Tiny software penny stocks, or small medical product penny stocks, or whatever, all have certain brand connotations to their product or service.  

The top ones are considered by customers as "easy to use," "reliable," low cost..."  These are brand connotations, and penny stocks that have positive ones in the eyes of their customers can keep customers, up-sell customers, and attract/convert new customers at lower expense.

Top Positioning in penny stocks:

Think of a product or service.  Describe it in one sentence or phrase.  Is it just another product in a crowded market place?  (Think Energy Drinks).

What comes to mind when I mention:

Safest car

Tallest building

The Pyramids

Social media

I don't know if you were like most people and thought of Volvo, CN Tower, Egypt, and Facebook, but I'm willing to bet your first thought wasn't Mini Cooper, the White House, the Mayan Riviera, and MySpace.

The point is that penny stocks are no different in relation to positioning.  They may be considered to have the top software for [whatever], the lowest cost of gold production, the top drug for [whatever], and so on.  

Instead of being the top cola (since Coke is already there), Pepsi does better by being the top cola for youth.  Penny stocks also are more successful when they position themselves to take a place in your brain.

Top Differentiation in penny stocks:    

Differentiation means "unique selling proposition," or "competitive advantage."  You understand that, I am sure.

Top Marketing in penny stocks:

We also look at advertising strategies when searching for top penny stocks.  Penny stocks can literally burn up millions of dollars, and get no positive results.  This happens more often than not, and those millions are gone faster than you would believe.  

An effective marketing campaign is so important.  The ads need to work, and by work, I mean strengthen the penny stocks brand and positioning, which then translates into revenues.

If they don't have a winning marketing approach, the next best thing is to run no advertising at all.

Look around you in your day to day activities.  How many brands do you see?  How many top brands and how many secondary?  How many products  pushing for positioning?  How many services declaring their differentiating factors?

Here's a hint - come up with your number, then multiply it by three.  Now look around again, because you missed most of them.

Third Level Analysis is only 10% of Leeds Analysis when we search for top penny stocks, mainly because it doesn't take very long to assess.  It is, however, an integral part of the process, and certainly the most fun.

We've been talking about top penny stocks and finding top penny stocks to invest in, but here's some unrelated homework - think about where you work in terms of Third Level Analysis, and give your company an honest grading.