This High Risk / High Reward Stock Just Broke Out

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: Genworth Financial Inc. (NYSE: GNW)

Today’s penny stock pick is the financial services company, Genworth Financial Inc. (NYSE: GNW).

Genworth Financial Inc. provides insurance products in the United States and internationally. The company operates in three segments: Enact, U.S. Life Insurance, and Runoff. The Enact segment offers mortgage insurance products primarily insuring prime-based, individually underwritten residential mortgage loans; and pool mortgage insurance products.

The U.S. Life Insurance segment offers long-term care insurance products; and service traditional life insurance and fixed annuity products in the United States. The Runoff segment includes variable annuity, variable life insurance, and corporate-owned life insurance, as well as funding agreements. It distributes its products through sales force, in-house sales representatives, and digital marketing programs.

Website:  https://www.genworth.com

Latest 10-k report:  https://sec.report/Document/0001193125-22-055674

Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst giving stock ratings to Genworth Financial in the past 3 months, the stock has an average rating of ‘Hold’. The price target was not given by the analyst.

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • GNW’s board authorized a share repurchase program of up to $350 million in May 2022. As of October 31, 2022, Genworth has repurchased $59 million worth of outstanding shares at an average price slightly below $3.90 per share.
  • Genworth spun off Enact Holdings (NASDAQ: ACT), its mortgage insurance business, in September 2021 at $19. Genworth continues to hold 81.6% of the company. GNW’s stake in Enact is worth more than the entire company.
  • The company reported increased net income year-over-year.

    GNW – Annual Report – Consolidated Statements of Income

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Breakout From Consolidation Area: The daily chart shows that the stock has currently broken out of a consolidation area which is marked as a purple color rectangle. This is a possible bullish sign.

GNW – 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 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as pink color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend. The stock is also trading above its 50-week and 200-week SMA, indicating that the bulls are firmly in control.

GNW – 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 GNW is above the price of $4.80.

Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $7.00.

Stop Loss: To limit risk, place a stop loss at $4.20. Note that the stop loss is on a closing basis.

Our target potential upside is 25% to 46%.

For a risk of $0.60, our first target reward is $1.20, and the second target reward is $2.20. 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:

  1. The company has multiple ongoing legal proceedings.
    1. In January 2016, Genworth Financial, certain members of its executive management team, including its former and present chief executive officer, and current and former members of its board of directors were named in a shareholder derivative suit filed by International Union of Operating Engineers Local No. 478 Pension Fund, Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case was captioned Int’l Union of Operating Engineers Local No. 478 Pension Fund, et al v. McInerney, et al.
    2. In September 2018, GLAIC, the company’s indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned TVPX ARX INC., as Securities Intermediary for Consolidated Wealth Management, LTD. on behalf of itself and all others similarly situated v. Genworth Life and Annuity Insurance Company
    3. In September 2018, Genworth Financial, Genworth Holdings, Genworth North America Corporation, GFIH and Genworth Life Insurance Company (GLIC) were named as defendants in a putative class action lawsuit pending in the Court of Chancery of the State of Delaware captioned Richard F. Burkhart, William E. Kelly, Richard S. Lavery, Thomas R. Pratt, Gerald Green, individually and on behalf of all other persons similarly situated v. Genworth et al.
    4. On April 6, 2020, GLAIC was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Eastern District of Virginia, captioned Brighton Trustees, LLC, on behalf of and as trustee for Diamond LS Trust; and Bank of Utah, solely as securities intermediary for Diamond LS Trust; on behalf of themselves and all others similarly situated v. Genworth Life and Annuity Insurance Company.
    5. In January 2021, GLIC and GLICNY were named as defendants in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned Judy Halcom, Hugh Penson, Harold Cherry, and Richard Landino, individually, and on behalf of all others similarly situated v. Genworth Life Insurance Company and Genworth Life Insurance Company of New York.
    6. In January 2021, GLAIC was named as a defendant in a putative class action lawsuit pending in the United States District Court for the District of Oregon captioned Patsy H. McMillan, Individually and On Behalf Of All Others Similarly Situated, v. Genworth Life and Annuity Insurance Company.
    7. On August 11, 2021, GLIC and GLICNY received a request for pre-suit mediation related to a potential class action lawsuit that may be brought by five long-term care insurance policyholders, seeking to represent a nationwide class alleging that the defendants made misleading and inadequate disclosures regarding premium increases for long-term care insurance policies…
  2. The company executives are being paid millions as compensation.

    GNW – Executive Compensation

  3. According to the company’s latest quarterly report, Q3 earnings and revenue declined from both the previous and year-ago quarter.

    GNW – Q3 Report – Consolidated Statements of Income

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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