The allure of penny stocks lies in their potential to deliver massive gains in a short period. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment.
Although the potential reward may make it worthwhile, choosing the right penny stock is a daunting task. Nevertheless, we’ll do our best to identify short-term trade opportunities in this exciting space.
With this in mind, we’re starting a new series called “Penny Stock of the Day”. These ideas are geared for traders with a high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: Anixa Biosciences Inc. (NASDAQ: ANIX)
Today’s penny stock pick is the biotechnology company, Anixa Biosciences Inc. (NASDAQ: ANIX).
Anixa Biosciences Inc. is a biotechnology company developing a number of programs addressing cancer and infectious disease. Anixa’s therapeutics portfolio includes a cancer immunotherapy program that uses a novel type of CAR-T technology, and a Covid-19 therapeutics program focused on inhibiting certain viral protein function. The company’s vaccine portfolio includes a vaccine to prevent breast cancer, and specifically triple negative breast cancer (TNBC), and a vaccine to prevent ovarian cancer.
Latest 10-k report: https://sec.report/Document/0001493152-21-000456/
Potential Catalysts / Reasons for the Hype:
- Anixa, in partnership with OntoChem, identifying a coronavirus therapeutic candidate. They are seeking to develop an orally administrable, room-temperature stable, anti-viral therapy against SARS-CoV-2, the virus that causes Covid-19.
- S. Food and Drug Administration (FDA) clearing the Investigational New Drug (IND) application for Anixa’s breast cancer vaccine.
- Anixa making a deal with Cleveland Clinic for the licensing technology for the breast cancer vaccine. Cleveland Clinic is a well-funded institution and had received a grant of $6.2 million from the Department of Defense in 2017.
- News about insiders buying the stock.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock has currently broken out of the falling wedge pattern. This pattern is marked in blue color lines. A breakout from the falling wedge pattern indicates that the stock may move higher. The stock is also trading above its 50-day as well as 200-day SMA, indicating that bulls are presently in control.
#2 Bullish MACD: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color). This indicates a possible bullish bias.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line is greater than the (-DI) line, the ADX and (+DI) lines are above the (-DI) line, and the ADX line is currently moving up from below the (-DI) and (+DI) lines.
#4 Strong RSI: The daily chart shows that the RSI is above 50 and moving higher, indicating the strength of the current upmove.
#5 Above Support Area: The weekly chart shows that the stock is currently trading above a long-term support area. This has been marked as a pink color dotted line. This is a possible bullish indication.
#6 Bullish Stoch: The weekly chart shows that the stochastic is moving higher from oversold levels. The %K line is also above the %D line. All these indicate possible bullishness.
#7 Broken Downtrend: The weekly chart shows that it has currently broken out of the prevailing downtrend and started an upmove. The downtrend line is marked in orange color. This is a possible bullish indication.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ANIX is above the price of $4.40. This is marked as a green color dotted line in the chart.
Target Prices: Our target prices are $6.00 and $9.00.
Stop Loss: To limit risk, place a stop loss at $3.50. Note that the stop loss is on a closing basis.
Our target potential upside is 36% to 105%. For a risk of $0.90, our first target reward is $1.60, and the second target reward is $4.60. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- ANIX has been a loss-making company. For the year ending October 31, 2020, the company reported a net loss of $10,092,363. The company’s net loss was $11,818,652 for the year ending October 31, 2019.
- The company’s FDA approval process for CAR-T cancer therapy had been put on hold until it receives further information. In case the FDA approval does not go through, it could cause a major decline in its price.
- Despite being a loss-making company, the compensation for the company’s CEO nearly quadrupled in 2020 compared to 2019. The total compensation for the company’s CFO also more than doubled in 2020 when compared to 2019. The companies with management who pays themselves exorbitantly well are usually a red flag.
- The company has just three full-time employees.
- The company has a history of failed product launches. ANIX had done the commercial launch of its Cchek prostate cancer confirmation test with huge publicity during the end of 2019. However, as per the latest annual reports that the Company remains engaged only in limited patent licensing activities regarding the Cchek™ liquid biopsy platform, and is not expected to be a significant part of the Company’s ongoing operations.
- The company is still reporting losses as per the latest quarterly report.
- The company had faced a class action lawsuit, Howland v. Kumar, C.A. no. 2018-0804-KSJM. The class claimed that Anixa Biosciences Inc. directors down-priced stock options held by insiders in 2017 while delaying a new patent award. The motion to dismiss claims of breach of fiduciary duty and unjust enrichment was denied.
- On August 21, 2019, ANIX had to enter into a settlement agreement in connection with a putative shareholder derivative complaint filed in the Court of Chancery of the State of Delaware on November 5, 2018.
- The bottomline is that the company is a high-risk-high-reward opportunity. In case the FDA approval for the cancer treatment goes through, the price could potentially skyrocket to double digits. However, if the approval doesn’t happen, the company shares may have a significant decline.
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
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