We recently started a series called “Penny Stock of the Day”. These ideas are geared towards 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: Nu Holdings Ltd (NYSE: NU)
Today’s penny stock pick is the Brazilian financial technology (fintech) company, Nu Holdings Ltd (NYSE: NU).
Nu Holdings Ltd operates as a digital financial services platform and technology company primarily in Brazil, Mexico, and Colombia. It offers Nu credit and debit cards; Ultraviolet credit and debit cards; and mobile payment solutions for NuAccount customers to make and receive transfers, pay bills, and make everyday purchases through their mobile phones.
The company provides savings solutions, such as Nu Personal Accounts, a digital account solution that supports all personal finance activities, from daily purchases and money transfers to savings; and Nu business accounts designed specifically for entrepreneur customers and their businesses.
In addition, it offers NuInvest, an investment product that provides equity, fixed-income, options, and ETF products, as well as multimarket funds with curated asset allocations based on the customer’s risk profile and financial position; personal unsecured loans; in-app buy now pay later’ solution for Nu card customers to pay credit and debit purchases, and banking payment slips over time in up to twelve installments; and NuInsurance protecting solutions to help its customers secure life insurance and funeral benefits.
Website: https://nubank.com.br/en/
Latest 10-k report: https://sec.report/Document/0001292814-22-001705/
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for NU in the last 3 months, the stock has an average price target of $8.00, which is nearly 80% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company recently reported first-quarter earnings, of which revenues came in stronger-than-expected.
- NU is backed by Warren Buffet and also has good support from the government.
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.
NU – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#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 pink color dotted line. This is a possible bullish indication.
NU – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 NU is above the price of $4.50.
Target Prices: Our first target is $5.30. If it closes above that level, the second target price is $6.00.
Stop Loss: To limit risk, place a stop loss at $4.00. Note that the stop loss is on a closing basis.
Our target potential upside is 18% to 33%.
For a risk of $0.50, our first target reward is $0.80, and the second target reward is $1.50. 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 has a history of net losses.
NU – Consolidated Statements of Comprehensive Income or Loss
- Hedge Funds Decreased Holdings by 11.3M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company is subject to a number of judicial and administrative proceedings, including civil, labor and tax law, and social security claims and other proceedings.
- Despite being a loss-making company, the aggregate compensation paid to members of board of directors and executive officers was approximately $8.9 million for the year 2021.
NU – Executive Compensation
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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