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: Gatos Silver Inc. (NYSE: GATO)
Today’s penny stock pick is the mining and exploration company, Gatos Silver Inc. (NYSE: GATO).
Gatos Silver Inc. engages in the exploration, development, and production of precious metals. It primarily explores silver ores. The company also explores zinc, lead, copper, and gold ores. Its flagship asset is the Cerro Los Gatos mine located in the Los Gatos District in Chihuahua state, Mexico.
Website: https://www.gatossilver.com
Latest 10-k report: https://sec.report/Document/0001104659-21-043336/ (of 2021)
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for GATO in the last 3 months, the stock has an average price target of $3.88, which is nearly 17% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported the best-ever quarter of production, with the 70%-owned Cerro Los Gatos mine in Mexico producing a record 2.7 million oz. of silver for the three months that ended September 30, a 59% increase over the third quarter of 2021.
- BMO Capital boosted its price target on the stock.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Downtrend Channel: The daily chart shows that the stock is currently trading within a downward sloping trend channel, which is shown as purple color lines. The stock is currently moving higher after taking support at the bottom rail of the downtrend channel. This seems like a bullish sign.
GATO – 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 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.
GATO – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 GATO is above the price of $3.45.
Target Prices: Our first target is $5.00. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss at $2.50. Note that the stop loss is on a closing basis.
Our target potential upside is 45% to 103%.
For a risk of $0.95, our first target reward is $1.55, and the second target reward is $3.55. 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 not yet filed the latest 10-k report.
- GATO has a history of net losses. For the years ended December 31, 2020, and 2019, the company’s net losses were $40.4 million and $37.8 million, respectively.
GATO – Consolidated Statements of Operations and Comprehensive Loss
- Hedge Funds Decreased Holdings by 103.1K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company was formerly known as Sunshine Silver Mining & Refining Corporation and changed its name to Gatos Silver, Inc. in October 2020.
- Despite being a loss-making company, the executives are being paid significant compensation.
GATO – 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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