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: Kosmos Energy Ltd (NYSE: KOS)
Today’s penny stock pick is the upstream oil company, Kosmos Energy Ltd (NYSE: KOS).
Kosmos Energy Ltd is a deepwater independent oil and gas exploration and production company, that focuses along the Atlantic Margins. The company’s primary assets include production offshore Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico, as well as a gas development offshore Mauritania and Senegal. It also maintains a proven basin exploration program.
Website: www.kosmosenergy.com
Latest 10-k report: https://sec.report/Document/0001509991-21-000031
Analyst Consensus: Based on 4 Wall Street analysts offering 12-month price targets for KOS in the last 3 months, the stock has an average rating of ‘Moderate Buy’ and an average price target of $4.93.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company inked a deal with Occidental Petroleum for an additional 18% interest in the Jubilee field and an additional 11% interest in the TEN fields in Ghana.
- Hedge Funds increased holdings by 1.3M shares last quarter.
KOS – Hedge Funds | Source: TipRanks.com
- Barclays upgrading KOS from equal weight to overweight and increasing price target.
Recent Analyst Ratings | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Breakout From Flag Pattern: The daily chart shows that the stock was in a strong uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. The flag pattern is marked in pink color in the chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
KOS – Daily Chart
#2 Price above MAs: The price is currently above the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA. This is a possible bullish sign.
#3 Bullish RSI: The RSI is currently above 50 and moving higher, indicating the strength of the current upmove. This is a possible bullish sign.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX has started to move up from below both (+DI) and (-DI).
#5 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#6 Trend Channel: As you can see from the weekly chart, the stock was trading within a channel during the past few months. This is marked in the chart in purple color. Currently, the stock looks poised for a breakout from the uptrend channel. This is a possible bullish sign.
KOS – Weekly Chart
#7 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#8 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for KOS is above the price of $4.60.
Target Prices: Our first target is $5.50. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss at $4.05. Note that the stop loss is on a closing basis.
Our target potential upside is 20% to 52%.
For a risk of $0.55, our first target reward is $0.90, and the second target reward is $2.40. 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 reporting increasing losses year over year.
KOS – Consolidated Statements of Operations
- Corporate Insiders had sold shares worth $62.5K in the last 3 months.
KOS – Insiders | Source: TipRanks.com
- Despite posting significant losses year after year, the company executives are being paid millions in compensation every year.
KOS – Executive Compensation
- The company has significant debt. The company’s partners include near-bankrupt BP and already-bankrupt Tullow.
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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