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: Vertex Energy Inc. (NASDAQ: VTNR)
Today’s penny stock pick is the environmental services company, Vertex Energy Inc. (NASDAQ: VTNR).
Vertex Energy, Inc. provides a range of services designed to aggregate, process, and recycle industrial and commercial waste systems in the Gulf Coast and Central Midwest regions of the United States. The company operates in three segments: Black Oil, Refining and Marketing, and Recovery.
The Black Oil segment collects and purchases used motor oil directly from third-party generators; aggregates used motor oil from a network of local and regional collectors; and sells used motor oil to customers for use as a feedstock or replacement fuel for industrial burners. It also produces and sells a vacuum gas oil product to refineries and marine fuels market; and base oil product to lubricant packagers and distributors.
The Refining and Marketing segment gathers hydrocarbon streams in the form of petroleum distillates, transmix, and other chemical products that are purchased from pipeline operators, refineries, chemical processing facilities, and third-party providers; and sells end products, such as gasoline blendstock, pygas, and fuel oil cutter stock to oil companies or to petroleum trading and blending companies.
The Recovery segment sells ferrous and non-ferrous recyclable metal products, and markets Group III base oils and other petroleum-based products, as well as provides transportation and marine salvage services.
Website: www.vertexenergy.com
Latest 10-k report: https://sec.report/Document/0001628280-21-004184/
Analyst Consensus: As per TipRanks Analytics, based on 1 wall street analyst offering 12-month price targets for VTNR in the last 3 months, the stock has an average rating of ‘Moderate Buy’ and a price target of $25.00.
Source: TipRanks.com
Analyst Forecasts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Analyst Manav Gupta at Credit Suisse recently initiated coverage on the stock with an outperform rating and a price target of $13 a share.
- Rumors that the company has been okayed for the acquisition of Royal Dutch Shell’s refinery in Mobile, Alabama, for $75 million by early 2022.
- If the acquisition goes through, VTNR would become a renewable diesel producer. This would offer “significant earnings growth potential” as well as opportunities to expand further, as per analyst Gupta.
- The company is trying to sell its core used motor-oil and recycling assets to Safety-Kleen to decrease debt.
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 months. 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. Once a stock breaks out of the falling wedge pattern, it typically moves higher.
VTNR – 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 started to move higher from below the +DI and -DI lines.
#3 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.
#4 Bullish RSI: The RSI is currently moving higher after reaching oversold levels and is currently above 50. This is a possible bullish sign.
#5 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 23.6% Fibonacci support level of the upmove before moving higher, as seen in the weekly chart. This indicates bullishness.
VTNR – Weekly Chart
#6 Bullish RSI: The RSI is currently moving higher after reaching oversold levels. This is a possible bullish sign.
#7 Bullish Stoch: The %K line of the stochastic is above the %D line and is moving higher from oversold levels. This indicates 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 VTNR is above the price of around $4.70.
Target Prices: Our target prices are $5.80 and $8.00.
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 23% to 70%.
For a risk of $0.70, our first target reward is $1.10, and the second target reward is $3.30. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses.
VTNR – Net Losses
- The company had raised $133.9 million ($155 million minus offering and agent fees) in November to fund its Mobile refinery acquisition. However, this amount is still not enough. The company has reported that it intends to raise another $250 million in secured and working loans to fully fund the acquisition and consequential capital expenditures on the refinery. Meanwhile, its plan to sell existing assets to Safety-Kleen is yet to clear major regulatory hurdles. This means that even if Vertex Energy can acquire the Mobile refinery as planned, it could still be a debt-heavy company.
- Despite being a loss-making company, the executives are being paid significant compensation.
VTNR – Executive Compensation
- The company has ongoing legal proceedings. Vertex Refining LA, LLC, the wholly-owned subsidiary of Vertex Operating was named as a defendant, along with numerous other parties, in five lawsuits filed on or about February 12, 2016, in the Second Parish Court for the Parish of Jefferson, State of Louisiana. The suits relate to alleged noxious and harmful emissions from our facility located in Marrero, Louisiana.
- On April 22, 2020, the company was notified by Nasdaq that it was not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share.
- Hedge Funds Decreased Holdings by 53.0K Shares Last Quarter.
Hedge Funds | 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.