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: Westport Fuel Systems Inc. (NASDAQ: WPRT)
Today’s penny stock pick is the transportation technology company, Westport Fuel Systems Inc. (NASDAQ: WPRT).
Westport Fuel Systems Inc. engineers, manufactures, and supplies alternative fuel systems and components for use in transportation applications worldwide. It operates through Original Equipment Manufacturer, Independent Aftermarket, and Cummins Westport Inc. (CWI) Joint Venture segments.
The company offers alternative fuel systems and components, which include a range of alternative fuels, such as liquefied petroleum gas, compressed natural gas, liquefied natural gas, renewable natural gas, and hydrogen; and independent aftermarket, original equipment manufacturers (OEMs) and delayed OEMs, electronics, current and advanced research and development programs, supply chain, and product planning activities.
It also provides Westport High Pressure Direct Injection 2.0, a fully integrated system that powers compression ignition engines by natural gas, which reduces greenhouse gas emissions. In addition, the company develops, sells, and markets spark-ignited natural gas or propane engines; and CWI engines for transit, school and shuttle buses, conventional trucks and tractors, refuse collection trucks, and specialty vehicles, such as short-haul port drayage trucks and street sweepers. Its products and services are used for passenger cars; light-, medium-, and heavy-duty trucks; and horsepower, cryogenics, and hydrogen applications.
Westport Fuel Systems Inc. markets its products primarily under the Cummins Westport, BRC Gas Equipment, Westport, OMVL, Prins, GFi Control systems, Emer, Zavoli, TA Gas Technology, Valtek, and AFS brands.
Website: www.wfsinc.com
Latest 10-k report: https://sec.report/Document/0001370416-21-000007/
Analyst Consensus: Based on 2 Wall Street analysts offering 12-month price targets for WPRT in the last 3 months, the stock has an average price target of $10.02. This is a nearly 163.68% Upside from the last close of $3.80.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The upcoming earnings announcement for Q3 on Nov 08, 2021.
- JP Morgan initiated research coverage with a neutral stance, but a $5 target price.
Recent Analyst Ratings | Source: TipRanks.com
- Rumors of a potential buyout.
- Corporate Insiders had bought shares worth $99.0K in the last 3 months.
Recent Insider Sentiment| Source: TipRanks.com
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, indicating possible bullishness.
WPRT – 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 moved higher from below the +DI and -DI lines.
#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line and moving higher, indicating possible bullishness.
#5 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.
#6 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. The stock had taken support at the 23.60% Fibonacci support level of the upmove before moving higher, as seen in the weekly chart. The stock is also currently trading above its 200-week SMA. All these are possible bullish signs.
WPRT – Weekly Chart
#7 Bullish RSI: The RSI is currently nearing 50 after moving higher from oversold levels in the weekly chart. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for WPRT is above the price of $4.35.
Target Prices: Our target prices are $6.00 and $7.50.
Stop Loss: To limit risk, place a stop loss at $3.40. Note that the stop loss is on a closing basis.
Our target potential upside is 38% to 72%.
For a risk of $0.95, our first target reward is $1.65, and the second target reward is $3.15. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- For the year ending December 31, 2020, the company had reported a net loss of $7.36 million.
WPRT – Consolidated Statements of Operations and Comprehensive Loss
- The company was formerly known as Westport Innovations Inc. and changed its name to Westport Fuel Systems Inc. in June 2016.
- WPRT executives are being paid good compensation despite reporting losses.
WPRT – Executive Compensation
- In 2019, the SEC investigated WPRT based on compliance with the company’s violation of the U.S. Foreign Corrupt Practice Act, for which the company had to reach a settlement. The company had faced allegations in the US that it had arranged for payoffs in China.
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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