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: Safe Bulkers Inc. (NYSE: SB)
Today’s penny stock pick is the marine drybulk transportation services company, Safe Bulkers Inc. (NYSE: SB).
Safe Bulkers Inc. owns and operates drybulk vessels for transporting bulk cargoes primarily coal, grain, and iron ore. As of March 15, 2021, the company had a fleet of 43 drybulk vessels having an average age of 10.3 years; and an aggregate carrying capacity of 3,937,000 deadweight tons. Its fleet consisted of 15 Panamax class vessels, 10 Kamsarmax class vessels, 14 post- Panamax class vessels, and four Capesize class vessels.
Website: www.safebulkers.com
Latest 10-k report: https://www.sec.gov/Archives/edgar/data/1434754/000162828021006132/sb-20201231.htm
Analyst Consensus: Based on 1 Wall Street analyst offering 12-month price targets for SB in the last 3 months, the stock has an average price target of $6.50 and an average rating of ‘Moderate Buy’. The average price target is a 31.58% upside from the last close.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Surging of dry bulk index. The BDI (Baltic Dry Index) is a composite of the Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
- New analyst coverage of SB. H.C. Wainwright dropped a note in support of Safe Bulkers stock, saying that it foresees “further tightening of the supply/demand balance and … strong vessel earnings over the next year.”
Recent Analyst Ratings | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Ascending Triangle Pattern Breakout: The daily chart shows that the stock had recently broken out of an ascending triangle pattern, which is marked as pink color lines. An Ascending Triangle pattern is a bullish pattern. A breakout from an ascending triangle pattern typically indicates bullishness. The base of the triangle generally acts as a good support level after the breakout. The stock had retested this level again before resuming its upmove. This is a possible bullish sign.
SB – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and the ADX line are currently 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 Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#6 Double Bottom Pattern Breakout: The weekly chart shows that the stock has currently broken out of a double bottom pattern, which is marked in orange color. This is a possible bullish sign.
SB – Weekly Chart
#7 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates 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 SB is above the price of $5.20.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss at $4.70. Note that the stop loss is on a closing basis.
Our target potential upside is 15% to 35%.
For a risk of $0.50, our first target reward is $0.80, and the second target reward is $1.80. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company has been posting declining profits year-over-year. For the year ended December 31, 2020, the company had a net loss of nearly $13 million.
SB – Annual Report – Consolidated Statements of Operations
- The company had recently announced an At-The-Market Equity Offering Program, which resulted in 125-130 million shares outstanding, causing dilution.
- Despite the present adverse environment, the company has been buying new vessels instead of using the cash to payoff the preferred stock, or declaring special dividends.
- In January 2016, the company had received notice from the NYSE indicating that the trading price of its Common Stock was not in compliance with the NYSE’s continuing listing standard that requires a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days.
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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