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: Community Health Systems Inc. (NYSE: CYH)
Today’s penny stock pick is the largest provider of general hospital healthcare services in the United States, Community Health Systems Inc. (NYSE: CYH).
Community Health Systems Inc. owns, leases, and operates general acute care hospitals in the United States. It offers general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic, psychiatric, and rehabilitation services, as well as skilled nursing and home care services.
The company also provides outpatient services at primary care practices, urgent care centers, free-standing emergency departments, ambulatory surgery centers, imaging and diagnostic centers, retail clinics, and direct-to-consumer virtual health visits. As of December 31, 2021, it owned or leased 83 hospitals, including 81 general acute care hospitals and two stand-alone rehabilitation or psychiatric hospitals with an aggregate of 13,289 licensed beds.
Website: https://www.chs.net
Latest 10-k report: https://sec.report/Document/0001564590-22-005570/
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for CYH in the last 3 months, the stock has an average price target of $7.39, which is nearly 111% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Rumors of a potential acquisition of the company.
- Hedge Funds Increased Holdings by 1.2M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company’s cost-containment efforts in the face of inflation brought down its cost of supplies, impressing investors. Further, the company stuck to its previous guidance, despite taking a hit from Hurricane Ian in the third quarter, showing resilience.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.
CYH – 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 RSI: The RSI is above 50 and moving higher, indicating possible bullishness.
#5 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible 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.
CYH – Weekly Chart
#7 MACD above Signal Line: In the weekly chart, 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 CYH is above the price of $3.80.
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 $3.10. Note that the stop loss is on a closing basis.
Our target potential upside is 32% to 84%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $3.20. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. For the year ended December 31, 2019, the company reported a net loss of $675 million.
CYH – Consolidated Statements of Income and Loss
- The company has multiple ongoing legal proceedings.
- Caleb Padilla, individually and on behalf of all others similarly situated v Community Health Systems, Inc., Wayne T. Smith, Larry Cash, and Thomas J. Aaron. This purported federal securities class action was filed in the United States District Court for the Middle District of Tennessee on May 30, 2019. It seeks class certification on behalf of purchasers of the company’s common stock between February 20, 2017, and February 27, 2018, and alleges misleading statements resulted in artificially inflated prices for CYH’s common stock.
- Larry Bomar v. Bayfront HMA Medical Center, LLC, et al – On September 14, 2017, the company’s former hospital in St. Petersburg, Florida received a civil investigative demand, or CID, from the United States Department of Justice for information concerning its historic participation in the Florida Low Income Pool Program.
- There are also multiple Commercial Litigation and Other Lawsuits like Steadfast Insurance Company, et al v. Community Health Systems, Inc., CHS/Community Health Systems, Inc., CHSPSC, LLC and Pecos Valley of New Mexico, LLC; Community Health Systems, Inc., et al v. Steadfast Insurance Company, et al; Anne Sperling, et al v. Community Insurance Group SPC, Ltd.
- Despite having a history of losses, the company executives are being paid significant compensation.
CYH – Executive Compensation
- The company has significant debt. As of December 31, 2021, CYH had approximately $11.3 billion aggregate principal amount of secured indebtedness outstanding and approximately $796 million of unsecured indebtedness outstanding, and an additional approximately $897 million of borrowing capacity under the ABL Facility.
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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