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: Alto Ingredients, Inc. (NASDAQ: ALTO)
Today’s penny stock pick is the producer of specialty alcohols and essential ingredients, Alto Ingredients, Inc. (NASDAQ: ALTO).
Alto Ingredients, Inc. produces and markets specialty alcohols and essential ingredients in the United States. The company operates in three segments: Marketing and Distribution, Pekin Production, and Other Production.
It offers specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants, and cleaners for health, home, and beauty markets; grain neutral spirits used in alcoholic beverages and vinegar, as well as corn germ used in corn oils and carbon dioxide used for beverage carbonation and dry ice; and essential ingredients include dried yeast, corn gluten meal, corn gluten feed, distiller’s grains, and liquid feed for commercial animal feed and pet food applications.
The company also provides fuel-grade ethanol used as transportation fuel and distillers corn oil used as a biodiesel feedstock, as well as fuel-grade ethanol produced by third parties. In addition, it offers transportation, storage, and delivery services through third-party service providers.
The company sells ethanol to integrated oil companies and gasoline marketers; essential ingredient feed products to dairies and feedlots; and corn oil to poultry and biodiesel customers. It operates five alcohol production facilities, including three plants in Illinois, Oregon, and Idaho.
Website: https://www.altoingredients.com
Latest 10-k report: https://ir.altoingredients.com/sec-filings/all-sec-filings/content/0001213900-23-019976/f10k2022_altoingred.htm
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for ALTO in the last 3 months, the stock has an average price target of $7.00, which is nearly 64% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company’s Independent Director Gilbert Nathan made the biggest insider purchase in the last 12 months, US$95k worth of shares.
- A near-term ruling by the Treasury on using the GREET methodology to calculate Sustainable Aviation Fuel (SAF) subsidies may be the catalyst for a re-rating of the entire ethanol industry. It takes about 1.9 gallons of ethanol to make a single gallon of SAF. Consequently, the price for renewable fuel ethanol will likely experience an exponential increase by the end of the decade as there will simply not be enough ethanol to meet the demands of both renewable fuel as well as SAF.
- ALTO will release its third quarter 2023 financial results after the close of market on Monday, November 6, 2023.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Ascending Triangle Pattern: The daily chart shows that the stock is currently forming an ascending triangle pattern, which is marked as purple color lines. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
ALTO – 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 SMA 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 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. The stock is also trading above its 50-week as well as 200-week SMA, indicating that the bulls are in control.
ALTO – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 ALTO is above the price of $4.50.
Target Prices: Our first target is $5.50. If it closes above that level, the second target price is $6.50.
Stop Loss: To limit risk, place a stop loss at $3.90. Note that the stop loss is on a closing basis.
Our target potential upside is 22% to 44%.
For a risk of $0.60, our first target reward is $1.00, and the second target reward is $2.00. 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 a history of net losses. ALTO had consolidated losses of $39.7 million and $17.3 million for the years ended December 31, 2022 and 2020, respectively.
ALTO – Consolidated Statements of Operations
- The United States fuel-grade ethanol industry is highly dependent upon various federal and state laws and any changes in those laws could have a material adverse effect on the company’s results of operations, cash flows, and financial condition.
- Hedge Funds Decreased Holdings by 232.0K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
ALTO – Executive Compensation
- There are lingering concerns over ALTO’s ability to fund all of its growth initiatives
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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