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: Wipro Limited (NYSE: WIT)
Today’s penny stock pick is the information technology, consulting, and business process services company, Wipro Limited (NYSE: WIT).
Wipro Limited operates through three segments: IT Services, IT Products, and India State Run Enterprise Services (ISRE). The IT Services segment offers IT and IT-enabled services, including digital strategy advisory, customer-centric design, technology and IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, cloud and infrastructure, business process, cloud, mobility and analytics, research and development, and hardware and software design services to enterprises.
It serves customers in various industry sectors, such as healthcare and medical devices, consumer goods and life sciences, retail, transportation and services, communications, media and information services, technology products and platforms, banking, financial services and insurance, manufacturing, hi-tech, energy, and utilities.
The IT Products segment provides a range of third-party IT products comprising enterprise platforms, networking solutions, software and data storage products, contact center infrastructure, enterprise security, IT optimization technologies, video solutions, and end-user computing solutions.
It serves enterprises in various industries primarily in the Indian market, which comprise the government, defense, IT and IT-enabled services, telecommunications, manufacturing, utilities, education, and financial services sectors. The ISRE segment offers IT services to entities and departments owned or controlled by the Government of India and/or various Indian State Governments.
Website: https://www.wipro.com
Latest 10-k report: https://www.wipro.com/content/dam/nexus/en/investor/annual-reports/2020-2021/annual-reports-fy21-22.pdf
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for WIT in the last 3 months, the stock has an average price target of $3.90.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company has a history of increasing net profits.
- WIT recently announced financial results under International Financial Reporting Standards for the quarter and year ended March 31, 2023. IT Services Revenue for the year increased by 11.5% YoY, Total Bookings were up by 28% YoY for the Year, Operating Cash Flows were reported at 115% of Net Income for the Year, and Board approved Buy-Back for the value of Rs 120 billion.
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 currently looks poised for a breakout from a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.
WIT – 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 looks like a good area for the stock to move higher.
WIT – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 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 WIT is above the price of $4.80.
Target Prices: Our first target is $5.50. If it closes above that level, the second target price is $6.10.
Stop Loss: To limit risk, place a stop loss at $4.40. Note that the stop loss is on a closing basis.
Our target potential upside is 15% to 27%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.30. 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 customer concentration risk. WIT’s revenue depends to a large extent on a limited number of clients. For the year ended March 31, 2022, WIT had one customer that accounted for 12.0% of its overall IT Products segment revenue.
- WIT derived approximately 58.5% of its IT Services segment revenue from the Americas (including the United States) and 29.9% of its IT Services segment revenue from Europe. Any economic slowdown or factors that affect the economic health of the United States or Europe would adversely affect its business.
- Hedge Funds Decreased Holdings by 1.4M Shares Last Quarter
Hedge Funds | Source: TipRanks.com
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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