This High Risk / High Reward Stock Just Broke Out with High Volume

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: Bright Health Group Inc. (NYSE: BHG)

Today’s penny stock pick is the integrated care delivery company, Bright Health Group Inc. (NYSE: BHG).

Bright Health Group Inc. engages in the delivery and financing of health insurance plans in the United States. It operates in two segments, NeueHealth and Bright HealthCare. The company offers individual and family, Medicare, and employers insurance plans. It also operates 28 managed and affiliated risk-bearing primary care clinics.

Website:  https://brighthealthgroup.com/

Latest 10-k report:  Not available

Analyst Consensus: According to TipRanks Analytics, based on 8 Wall Street analysts offering 12-month price targets for BHG in the last 3 months, the stock has a ‘Moderate Buy’ rating and an $8.36 price target.

Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • The company announced a $750 million financing to support continued growth. The financing includes a strategic investment by Cigna Ventures as a new investor in the company. The Company’s largest existing shareholder, New Enterprise Associates, will also participate as a co-investor.
  • Corporate Insiders Bought Shares Worth $959.0K in the Last 3 Months.

    Insiders| Source: TipRanks.com

  • BHG recently reaffirmed 2021 guidance of $4.1 to $4.2 billion in Revenue and introduced 2022 guidance that includes significant growth across both NeueHealth and Bright HealthCare businesses.

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Falling Wedge Pattern: The daily chart shows that the stock was forming a falling wedge pattern for the past several weeks. These are marked as orange color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock looks currently poised to break out of the falling wedge pattern with high volume, indicating possible bullishness.

BHG – Daily Chart

#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and ADX line are above the -DI line, and the ADX line has currently started moving higher from below the +DI and -DI lines.

#3 Bullish Stoch: The %K line of the stochastic is above the %D line, indicating bullishness.

#4 Bullish MACD: In the daily chart, the MACD line is above the MACD Signal 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 pink color dotted line. This is a possible bullish indication.

BHG – Weekly Chart

#6 Oversold RSI: The RSI is presently moving higher after reaching oversold levels, indicating that a reversal may be imminent soon.

#7 Bullish Stoch: The %K line of the stochastic is above the %D line in the weekly chart as well. It is also moving higher from oversold levels, indicating bullishness.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for BHG is above the price of $4.60.

Target Prices: Our target prices are $5.60 and $7.00.

Stop Loss: To limit risk, place a stop loss below $4.00. Note that the stop loss is on a closing basis.

Our target potential upside is 22% to 52%.

For a risk of $0.60, our first target reward is $1.00, 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:

  1. The company has not filed annual reports.
  2. As per the latest quarterly report, the company had a net loss of $296.7 million for the Three Months Ended September 30, 2021.

    BHG – Quarterly Report – Net Loss

  3. BHG has a history of name changes. The company was formerly known as Bright Health Inc. and changed its name to Bright Health Group, Inc. in February 2021.
  4. Hedge Funds Decreased Holdings by 1.5M Shares Last Quarter.

    Hedge Funds| Source: TipRanks.com

  5. The partnership with Cigna translates to more than 26% dilution. BHG also has to pay 5% dividend on $750m which is $37.5m per year.
  6. In Medicare, the company faces competition from companies like Oscar Health (NYSE: OSCR) and Clover Health (NASDAQ: CLOV). Of them, Clover Health Investments is highly exposed to older Medicare patients who are bringing high COVID-related expenses; while Oscar Health is sitting on a very large cash cushion.
  7. Bronstein, Gewirtz & Grossman, LLC is investigating potential claims on behalf of purchasers of Bright Health Group, Inc. The investigation concerns whether Bright Health and certain of its officers and/or directors have violated federal securities laws
  8. Labaton Sucharow, shareholder rights law firm is investigating potential violations of the federal securities laws by Bright Health Group, Inc.
  9. Noting the higher than anticipated operating loss the company recorded for Q3 2021 and guided for the current quarter, Morgan Stanley has lowered the rating on Bright Health Group to Equal Weight from Overweight.

    Recent Analyst Ratings | Source: TipRanks.com

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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