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: NGL Energy Partners LP (NYSE: NGL)
Today’s penny stock pick is the vertically integrated energy business company, NGL Energy Partners LP (NYSE: NGL).
NGL Energy Partners LP engages in the crude oil and liquids logistics, and water solution businesses. The company’s operating segments include Crude Oil Logistics, Water Solutions, Liquids, and Refined Products. It operates crude oil storage terminals, and owns pipeline injection stations, and offers services for the treatment and disposal of wastewater generated from crude oil and natural gas production, and for the disposal of solids, such as tank bottoms and drilling fluids. The firm also supplies natural gas liquids to retailers, wholesalers, refiners, and petrochemical plants and sells propane and distillates.
Website: www.nglenergypartners.com
Latest 10-k report: https://sec.report/Document/0001504461-21-000025/
Analyst Consensus: According to TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for NGL Energy Partners in the last 3 months, the stock has a ‘Hold’ rating and a price target of $3.00, which is a 53.96% upside from current levels.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The news of the company CEO Krimbill buying 100,000 units this week. The corporate insiders had bought shares worth $1.1 million in the Last 3 Months.
NGL – Insider Transactions | Source: TipRanks.com
- The company posted fourth-quarter revenue rising by $1.75 billion, up 4.2% from last year.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock was forming a falling wedge pattern for the past several weeks. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern with very high volume, indicating possible bullishness. The stock is also trading above its 50-day SMA, indicating that the bulls are currently gaining control.
NGL – 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 is currently moving higher from below the +DI and -DI lines.
#3 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.
#4 Bullish Stoch: The chart shows that the %K line of the stochastic is above the %D line, indicating possible bullishness.
#5 Above Support Area: The weekly chart shows that the stock is trading above a support area, which is marked as a blue color dotted line. This is a possible bullish indication.
NGL – Weekly Chart
#6 Bullish Stoch: In the weekly chart as well, the %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for NGL is above the price of $2.00.
Target Prices: Our target prices are $2.70 and $4.50.
Stop Loss: To limit risk, place a stop loss at $1.55. Note that the stop loss is on a closing basis.
Our target potential upside is 35% to 125%.
For a risk of $0.45, our first target reward is $0.70, and the second target reward is $2.00. This is a nearly 1:2 and 1:6 risk-reward trade.
In other words, this trade offers 2x to 6x more potential upside than downside.
Potential Risks / Red Flags:
- The company has been a loss-making company. The company had reported a net loss of $6.3 million for the year ended March 31, 2021.
NGL Consolidated Statements of Operations
- Since its inception, the company has been piling on debt at a higher rate than its EBITDA growth, leading to the current levered company. The company has low profit margins, and lots of long-term debt hanging out YoY.
- Despite being a loss-making company, the executives are being paid significant compensation.
NGL – Executive Compensation
- NGL had attempted rescues with Oaktree and Apollo, both of which bailed on them at the endpoints of their original investments.
- The stock price could plummet in case oil prices decline, as the oil price has been the main share price performance driver of NGL.
- The company has a history of restating financials, which typically translates to incompetence.
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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