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: Itau Unibanco Holding SA ADR (NYSE: ITUB)
Today’s penny stock pick is the financial services company, Itau Unibanco Holding SA ADR (NYSE: ITUB).
Itau Unibanco Holding SA ADR provides a range of financial products and services in Brazil and internationally. The company operates through three segments: Retail Banking, Wholesale Banking, and Activities with the Market + Corporation. It offers various deposit products, as well as loans and credit cards; investment banking services; real estate lending services; financing and investment services; and leasing and foreign exchange services. The company also provides property and casualty insurance products covering loss, damage, or liabilities for assets or persons, as well as life insurance products covering death and personal accident; and reinsurance products. It serves retail customers, account and non-account holders, individuals and legal entities, high income clients, microenterprises, and companies.
Website: www.itau.com.br
Latest 10-k report: https://sec.report/Document/0001193125-21-145469/
Analyst Consensus: Not Covered By Analysts.
Potential Catalysts / Reasons for the Hype:
- The company declared a monthly dividend. Investors of record on Wednesday, February 2nd will be paid a dividend of 0.003 per share by the bank on Monday, March 14th. This represents a $0.04 dividend on an annualized basis and a yield of 0.94%. The ex-dividend date is Tuesday, February 1st.
- Hedge Funds Increased Holdings by 54.5K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- According to Fitch Ratings, the performance of Brazil’s banking sector has stabilized, with better capitalization and earnings supporting near-term profitability.
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 has been forming a falling wedge pattern for the past several months. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
ITUB – 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 is currently moving 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 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 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a purple color dotted line. This is a possible bullish indication.
ITUB – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 Bullish RSI: The RSI is moving higher from oversold levels and is currently near 50, 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 ITUB is above the price of $4.44.
Target Prices: Our first target is $5.40. If it closes above that level, the second target price is $6.20.
Stop Loss: To limit risk, place a stop loss at $3.90. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 90%.
For a risk of $0.54, our first target reward is $0.96, and the second target reward is $1.76. 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:
- The company’s net income nearly halved year-over year.
ITUB – Net Income
- The company was formerly known as Itau Unibanco Banco Multiplo S.A. and changed its name to Itau Unibanco Holding S.A. in April 2009.
- Labor unions and former employees have filed labor claims against ITUB, seeking compensation for alleged breaches of employment agreements or rights under the applicable labor laws. As of December 31, 2020, there were 56,555 labor claims filed against the company.
- The company is a defendant in lawsuits for the collection of understated inflation adjustment for savings resulting from the economic plans implemented in the 1980s and 1990s by the Brazilian Federal Government as a measure to combat inflation.
- On June 25, 2013, ITUB received a notice of deficiency from the Brazilian tax authorities alleging that the company failed to pay approximately R$11,844.7 million of corporate income tax (IRPJ), plus accrued penalties and interest, and approximately R$6,867.0 million of CSLL, plus accrued penalties and interest, in 2008 fiscal year, as a result of the corporate transaction that led to the association of Itaú Holding and Unibanco Holdings S.A.
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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