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: Gran Tierra Energy Inc. (NYSEAMERICAN: GTE)
Today’s penny stock pick is the energy company, Gran Tierra Energy Inc. (NYSEAMERICAN: GTE).
Gran Tierra Energy Inc. based in Calgary, Alberta, Canada, focuses on oil and gas exploration, development and production, particularly in South America. The company, together with its subsidiaries, engages in the exploration and production of oil and gas properties in Colombia and Ecuador. As of December 31, 2021, it had total proved undeveloped reserves of 24.8 million barrels of oil equivalent in Colombia.
Website: www.grantierra.com
Latest 10-k report: https://sec.report/Document/0001273441-22-000007
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for GTE in the last 3 months, the stock has an average price target of $2.14, which is nearly 2% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company announced that it paid off its credit facility.
- GTE confirmed the successful ramp-up in production as new wells were brought online in South America. The company achieved Total Average Production of 30,556 BOPD During Second Quarter-to-Date 2022.
- The tailwind from the higher oil and natural gas prices.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Ascending Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of an ascending triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color lines. A breakout from this pattern typically indicates bullishness. The base of the triangle generally acts as a good support level after the breakout.
GTE – 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 MAs: The stock is currently above its 50-day as well as 200-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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 Uptrend Channel Breakout: As you can see from the weekly chart, the stock has been trading within an uptrend channel for the past several months. This is marked in the chart in pink color lines. Currently, the stock has broken out of the uptrend channel. Once a stock breaks out from a channel, it has the potential to move further up. The stock is also trading above its 50-week and 200-week SMA, indicating that the bulls are still in control.
GTE – 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.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for GTE is above the price of $2.15.
Target Prices: Our first target is $2.90. If it closes above that level, the second target price is $3.80.
Stop Loss: To limit risk, place a stop loss at $1.70. Note that the stop loss is on a closing basis.
Our target potential upside is 35% to 77%.
For a risk of $0.45, our first target reward is $0.75, and the second target reward is $1.65. 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:
- The company has a history of net losses. Although the company reported a net income of $42.5 million in 2021, the net loss was $778.0 million in 2020.
GTE – Consolidated Statements of Operations
- The company has several lawsuits and claims pending, which could have adverse effects on GTE’s consolidated financial position, results of operations, or cash flows.
- Hedge Funds Decreased Holdings by 2.9M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
GTE – Executive Compensation
- The company is vulnerable to risks associated with geographically concentrated operations. For the year ended December 31, 2021, the Acordionero, Costayaco, Moqueta, and Cohembi Fields collectively generated 89% of GTE’s production and on December 31, 2021, these four Fields accounted for 84% of the company’s proved reserve.
- GTE requires significant capital expenditures. If the company raises additional capital, future financings may be dilutive to the shareholders.
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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