Analysts Think This $2 Stock Has 60%-Plus Upside Potential

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: The Lion Electric Company (NYSE: LEV)

Today’s penny stock pick is the electric vehicle manufacturer, The Lion Electric Company (NYSE: LEV).

The Lion Electric Company designs, develops, manufactures, and distributes purpose-built all-electric medium and heavy-duty urban vehicles in North America. The company’s products include battery systems, chassis, bus bodies, and truck cabins. It also distributes truck and bus parts, as well as accessories.

Website:  https://thelionelectric.com/en

Latest 10-k report:  https://ir.thelionelectric.com/English/financials/sec-filings/sec-filings-details/default.aspx?FilingId=16480111

Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for LEV in the last 3 months, the stock has an average price target of $3.75, which is nearly 65% upside from current levels.

Potential Catalysts / Reasons for the Hype:

• The company announced it entered into subscription agreements with investors contemplating concurrent finance transactions, which will result in aggregate gross proceeds of approximately $142 million.

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

Bullish Indications

#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock has been forming a falling wedge pattern for the past several months. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.

#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.

#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.

#8 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 LEV is above the price of $2.35.

Target Prices: Our first target is $3.00. If it closes above that level, the second target price is $3.70.

Stop Loss: To limit risk, place a stop loss below $2.00. Note that the stop loss is on a closing basis.

Our target potential upside is 28% to 57%.

For a risk of $0.35, our first target reward is $0.65, and the second target reward is $1.35. 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 a history of net losses. LEV reported a net loss of $97.4 million for the year ended December 31, 2020, and a net loss of $43.3 million for the year ended December 31, 2021. Although the company reported net earnings of $17.8 million for the year ended December 31, 2022, it was largely due to lower non-cash share-based compensation, lower transaction and finance costs, and the higher gain on the fair value of share warrant obligations.
   

   LEV – Consolidated Statements of Operations

2. Hedge Funds Decreased Holdings by 59.4K Shares Last Quarter.
   

   Hedge Funds | Source: TipRanks.com

3. The electric vehicle industry is highly competitive and Lion is likely to face competition from a number of sources. Lion’s competition for their trucks comes from manufacturers of purpose-built all-electric vehicles such as Nikola, BYD, and Xos, manufacturers of hybrid/retrofit EVs such as Workhorse, Lightning eMotors, and Hyliion, and manufacturers of trucks with internal combustion engines powered by diesel fuel, which includes Traton, Daimler, Volvo, PACCAR, Hino (Toyota), and other automotive manufacturers.
4. Despite being a loss-making company, the executives are being paid significant compensation.
   

   LEV – 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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