This High Risk / High Reward Stock Has Multiple Bullish Indicators

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: Ambev S.A. (NYSE: ABEV)

Today’s penny stock pick is the Brazilian brewing company, Ambev S.A. (NYSE: ABEV).

Ambev S.A. produces, distributes, and sells beer, draft beer, carbonated soft drinks (CSD), other non-alcoholic beverages, malt, and food products in the Americas. It operates through three segments: Brazil; Central America and the Caribbean; Latin America South; and Canada. its corporate parent is Anheuser-Busch Inbev SA (NYSE:BUD).

The company offers beer primarily under the Skol, Brahma, Antarctica, Brahva, Brahva Gold, Extra, Budweiser, Bud Light, Stella Artois, Corona, Modelo Especial, Beck, Leffe, Hoegaarden, Bucanero, Cristal, Mayabe, Cacique, Presidente, Brahma Light, President Light, Bohemia, The One, Banks, Deputy, Quilmes Clásica, Paceña, Taquiña, Huari, Becker, Cusqueña, Pilsen, Ouro Fino, Patricia, Michelob Ultra, Busch, Labatt Blue, Alexander Keith’s, and Kokanee brands.

It also provides bottled water, isotonic beverages, energy drinks, coconut water, powdered and natural juices, and ready-to-drink teas under the Guaraná Antarctica, Natu, Gatorade, H2OH!, Lipton Iced Tea, Fusion, Do Bem, Pepsi, Canada Dry, Squirt, Red Rock, Pepsi-Cola, Seven Up, Nutrl, and Palm Bay and Mike’s brands, as well as For Me wellness shots, a functional beverage.

Website:  www.ambev.com.br

Latest 10-k report:  https://sec.report/Document/0001292814-21-001039/

Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for ABEV in the last 3 months, the stock has an average price target of $3.46, which is a 7.45% upside from current levels.

Potential Catalysts / Reasons for the Hype:

• Q3 earnings beat reported on November 4.
• Increased demand for beer amid a continuing recovery from the coronavirus pandemic.

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 purple color lines. This is a possible bullish indication.

#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 is currently moving 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 New Uptrend: The weekly chart shows that the stock has currently started an uptrend, which is marked as a pink color line. This is a possible bullish indication.

#7 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for ABEV is above the price of $3.25.

Target Prices: Our first target is $4.00. If it closes above that level, the second target price is $5.00.

Stop Loss: To limit risk, place a stop loss at $2.80. Note that the stop loss is on a closing basis.

Our target potential upside is 23% to 54%.

For a risk of $0.45, our first target reward is $0.75, and the second target reward is $1.75. 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:

1. The company was formerly known as Inbev Participacoes Societarias SA. ABEV was created on July 1, 1999, with the merger of two breweries, Brahma and Antarctica.
2. Ambev has multiple ongoing legal proceedings and has estimated the total exposures of possible losses, which are not recorded as liabilities, to be R$81.5 billion as of December 31, 2020.
3. Since 2005, the company and certain of its subsidiaries have been receiving a number of assessments from Brazilian federal tax authorities relating to the profits of ABEV’s foreign subsidiaries. As of December 31, 2020, ABEV was party to tax proceedings with a total estimated possible risk of loss of R$ 78.2 billion.
4. The company is involved in more than 17,000 labor claims and in claims regarding the social charges on the payroll. ABEV’s management estimates the possible losses related to these claims to be, approximately, R$0.4 billion as of December 31, 2020.
5. As of December 31, 2020, the company is involved in more than 8,500 civil claims, including third-party distributors and product-related claims.
6. The company faces stiff competition from Heineken, and Molson Coors, and craft beer in Canada.

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.