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: Banco Bradesco SA (NYSE: BBD)
Today’s penny stock pick is the financial services company, Banco Bradesco SA (NYSE: BBD).
Banco Bradesco SA provides various banking products and services to individuals, corporates, and businesses in Brazil and internationally. The company operates through Banking and Insurance segments. It provides demand and time deposits, savings deposits, mutual funds, and a range of loans and advances, including overdrafts, credit cards, and loans with repayments in installments; and fund management and treasury services, foreign exchange services, corporate finance and investment banking services, and hedge and finance services, including working capital financing. The company offers leasing, investment and private banking, brokerage, and consortium management services, as well as real estate products, pension plans, and capitalization bonds. It also provides auto, health, life, and accident and non-life insurance products.
Website: www.bradesco.com.br
Latest 10-k report: https://sec.report/Document/0001292814-21-001938/
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for BBD in the last 3 months, the stock has an average price target of $5.00, which is nearly 20% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The stock was a target of some unusual options trading on Friday. Investors purchased 44,846 call options on the stock.
- Barclays recently began coverage on Banco Bradesco. They set an “overweight” rating and a $5.00 price target for the company.
Analyst Forecasts | Source: TipRanks.com
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 purple 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.
BBD – 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#5 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.
#6 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 23.60% Fibonacci support level of the upmove before moving higher, as seen in the weekly chart. This is a possible bullish indication.
BBD – Weekly Chart
#7 MACD above Signal Line: In the weekly chart as well, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#8 Bullish RSI: The RSI is above 50 and moving higher, 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 BBD is above the price of $4.20.
Target Prices: Our first target is $5.40. If it closes above that level, the second target price is $6.40.
Stop Loss: To limit risk, place a stop loss at $3.50. Note that the stop loss is on a closing basis.
Our target potential upside is 29% to 52%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $2.20. 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:
- Hedge Funds Decreased Holdings by 1.8M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- In 2019, as part of operation “Câmbio Desligo”, a follow on from operation Lava-Jato, two of the company’s former managers were investigated and indicted by the Public Prosecutor’s Office for alleged involvement in the opening and maintenance of current accounts for companies with irregularities.
- The company executives are being paid significant compensation. In 2020, BBD’s Directors, Board of Executive Officers, and subsidiaries received aggregate compensation of R$534.7 million for their services.
- The company’s sales and earnings have fallen over the past few years.
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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