We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely 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: Quad/Graphics, Inc. (NYSE: QUAD)
Today’s penny stock pick is the American commercial printing company, Quad/Graphics, Inc. (NYSE: QUAD).
Quad/Graphics, Inc. provides marketing solutions worldwide. It offers printing services, such as retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, and other commercial and specialty printed products; and paper procurement services.
The company also provides marketing and other services, including consumer insights, audience targeting, personalization, media planning and placement, process optimization, campaign planning and creation, pre-media production, videography, photography, digital and print execution, and logistics, as well as manufactures ink. It serves blue chip companies that operate in various industries; and businesses and consumers comprising retailers, publishers, and direct marketers.
Website: www.quad.com
Latest 10-k report: https://sec.report/Document/0001481792-21-000008/
Analyst Consensus: Stock not covered by analysts
Potential Catalysts / Reasons for the Hype:
- High insider volume buying during the past nine months. Corporate Insiders had bought shares worth $245.2K in the last 3 months.
QUAD – Insider Transactions
- The company reporting positive Q2 results with raised guidance for the FY21 and strong debt repayment.
- Sale of the company’s QuadExpress 3PL Logistics Business to pay down debt and improve its debt leverage ratio.
- Nearly 22.41% of Shares are being held by insiders.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of a Symmetrical Triangle pattern with high volume. A symmetrical triangle is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. This is marked on the daily chart as purple color lines. Once a stock breaks out from a symmetrical triangle pattern, it usually moves higher.
QUAD – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line has started to move higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above both 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#5 IH&S Pattern: The stock’s weekly chart shows that the stock has been forming an Inverted Head and Shoulders pattern. This is marked in the chart in orange color. An IH&S pattern is a bullish pattern and a breakout from it is usually the sign of an upcoming bullish move. The stock is also trading above its 50-week SMA, indicating that the bulls are currently in control.
QUAD – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 Bullish MACD: The weekly chart also shows that the MACD line (blue color) is currently above the MACD signal line (orange color). This is a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for QUAD is above the price of $5.00.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $10.00.
Stop Loss: To limit risk, place a stop loss at $4.40. Note that the stop loss is on a closing basis.
Our target potential upside is 20% to 100%.
For a risk of $0.60, our first target reward is $1.00, and the second target reward is $5.00. This is a nearly 1:2 and 1:8 risk-reward trade.
In other words, this trade offers 2x to 8x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of losses. For the year ended December 31, 2020, the company had reported a net loss of $128 million.
QUAD – Consolidated Statements of Operations
- The company website lists 20 leaders in the C-suite, Division President, EVP, and VP roles. Quad had also recently brought in Dr. Kathryn Quadracci Flores, CEO Joel Quadracci’s sister, to be President of QuadMed LLC, which is a health and wellness subsidiary of Quad/Graphics Inc. A large number of leadership positions in a company as small as Quad, as well as multiple family members on the company’s payroll is usually not a good sign.
- Despite being a loss-making company, the company executives are drawing very high compensation.
QUAD – Executive Compensation 2019
QUAD – Executive Compensation 2020
- There has been a decline in demand for printing services caused by the substitution of printed products with digital content, the COVID-19 pandemic, and recent recessions, as well as significant downward pricing pressure. These may adversely affect the Company in the near-term as well as long-term.
- Quad has ongoing legal proceedings. In late 2019, shareholders had filed against the Company and certain of the Company’s officers alleging that the Company and those officers misrepresented and/or omitted material information in the Company’s public filings prior to the earnings release for the third quarter of 2019, rendering statements therein allegedly false and misleading and in violation of the Securities Exchange Act of 1934 and related regulations.
- In October 2020, a Quad/Graphics Inc. employee filed a proposed class action in Wisconsin federal court claiming the company’s $2 billion 401(k) plan charges excessive administrative fees and offers overly expensive investment options.
- The company is facing violations of California’s Labor Code which occurred on a systematic basis to Quad/Graphics employees. The lawsuit, entitled Clark, et al. v. QG Printing II, LLC, et al., is currently pending in the United States District Court of the Eastern District of California, Case No. 1:18-CV-00899-AWI-EPG.
- The company has declining sales, as per the latest quarterly report.
QUAD – Quarterly Sales
- In late 2019, securities class action suit was filed against Quad/Graphics accusing the CEO, CFO of misleading investors.
- Another Lawsuit file in the U.S. District court for the Southern District of New York seeks to establish a class action case against Quad for anyone who bought shares between Feb. 21, 2018, and Oct. 29, 2019.
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!
Happy Trading!
Trades of the Day Research Team
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. 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. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.
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