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: Arbutus Biopharma Corp (NASDAQ: ABUS)
Today’s penny stock pick is the biopharmaceutical company, Arbutus Biopharma Corp (NASDAQ: ABUS).
Arbutus Biopharma Corp engages in the discovery, development, and commercialization of a cure for patients suffering from chronic Hepatitis B virus (HBV) infection in the United States.
Its HBV product pipeline consists of AB-729, a proprietary subcutaneously-delivered RNA interference product candidate, and AB-836, an oral capsid inhibitor that suppresses HBV DNA replication. The company’s research and development programs include HBV RNA destabilizers; oral PD-L1 inhibitor to enable reawakening patients’ HBV-specific immune response; and small molecule antiviral medicines to treat coronaviruses, including COVID-19.
The company has strategic alliance, licensing, and research collaboration agreements with Marqibo; Gritstone Oncology, Inc.; Alnylam Pharmaceuticals, Inc.; Acuitas Therapeutics, Inc.; and Antios Therapeutics, Inc. Arbutus Biopharma Corporation also has a clinical trial collaboration agreement with Vaccitech plc to evaluate a therapeutic combination for the treatment of subjects with chronic HBV infection.
Website: www.arbutusbio.com
Latest 10-k report: https://sec.report/Document/0001447028-21-000021/
Analyst Consensus: Based on 5 Wall Street analysts offering 12-month price targets for ABUS in the last 3 months, the stock has an average price target of $7.00 and an average rating of ‘Strong Buy’. The average price target for ABUS is $7.00, which is an 80.88% upside from the last close.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The speculation that the company has won a patent fight against Moderna. This could potentially set up a royalty stream on coronavirus vaccine. The U.S. Patent and Trademark Office website shows that Arbutus was granted a notice of allowance on Sept. 2 for a patent covering novel lipid formulations for nucleic acid delivery. As per an article published in Forbes last month, scientific papers and regulatory documents indicate that both Moderna’s vaccine and Pfizer/ BioNTech’s use a delivery system that is quite similar to what Ian McLachlan created. Put simply, Moderna Pfizer or any company using ABUS ‘s ‘069 patent which relates to lipid nanoparticle (LNP) technology would owe ABUS money for vaccine, cure, or therapy that uses it.
- The rumors of possible buyouts.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as pink color lines. This is a possible bullish indication.
ABUS – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and the ADX lines are above the -DI line, and the ADX line has currently moved 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 Double Bottom Pattern: The weekly chart shows that the stock is currently forming a double bottom pattern, which is shown in purple color. A double bottom pattern is a strong bullish pattern and a breakout from it would indicate that the stock could surge higher.
ABUS – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 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 ABUS is above the price of $3.95.
Target Prices: Our first target is $5.00. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss at $3.30. Note that the stop loss is on a closing basis.
Our target potential upside is 27% to 77%.
For a risk of $0.65, our first target reward is $1.05, and the second target reward is $3.05. 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:
- ABUS has been a loss-making company. For the fiscal year ended December 31, 2020, the company had reported a net loss of $75.9 million, while it was $164.9 million for the year ended December 31, 2019.
ABUS – Annual Report – Net losses
- The company was formerly known as Tekmira Pharmaceuticals Corporation and changed its name to Arbutus Biopharma Corporation in July 2015.
- Despite being a loss-making company, the executives are drawing significant compensation.
ABUS – Executive Compensation
- There was no major update on any of the company’s pipeline candidates — especially its antiviral program developing drugs to treat COVID-19, which is still in preclinical development but could advance rapidly given the pandemic.
- The company’s HBV product AB-729’s predecessor AB-506 had some safety problems, which had ultimately led to its discontinuation. If Phase 1 data of AB-729 doesn’t look promising, there could be a decline in the stock prices.
- In the latest quarter as well, the company has reported significant losses.
ABUS – 10-q – Net Losses
- An arbitrator had ruled in favor of the University of British Columbia in a dispute with Arbutus Biopharma over patents related to nanoparticle delivery systems and ordered the company to pay $5.8M.
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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