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: Diversified Healthcare Trust (NASDAQ: DHC)
Today’s penny stock pick is the real estate investment trust, Diversified Healthcare Trust (NASDAQ: DHC).
Diversified Healthcare Trust is focused on owning high-quality healthcare properties located throughout the United States. DHC seeks diversification across the health services spectrum by care delivery and practice type, by scientific research disciplines, and by property type and location.
As of September 30, 2023, DHC’s approximately $7.2 billion portfolio included 376 properties in 36 states and Washington, D.C., occupied by approximately 500 tenants, and totaling approximately 9 million square feet of life science and medical office properties and more than 27,000 senior living units.
DHC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with approximately $36 billion in assets under management as of September 30, 2023, and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate.
Website: https://www.dhcreit.com
Latest 10-k report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001075415/6d931d64-5d3a-420f-b20f-f464aa95e409.pdf
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst the stock has an average rating of “Hold”.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Hedge Funds Increased Holdings by 8.8M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company is expected to post earnings of $0.07 per share for the current quarter, representing a year-over-year change of +133.3%.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple 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.
DHC – 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 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 gaining firm control.
DHC – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#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 DHC is above the price of $3.26.
Target Prices: Our first target is $4.20. If it closes above that level, the second target price is $5.00.
Stop Loss: To limit risk, place a stop loss at $2.70. Note that the stop loss is on a closing basis.
Our target potential upside is 29% to 53%.
For a risk of $0.56, our first target reward is $0.94, and the second target reward is $1.74. 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.
DHC – Consolidated Statements of Comprehensive Loss
- The company has a substantial amount of debt. As of December 31, 2022, DHC’s consolidated debt was $3.1 billion and was fully drawn on its credit facility.
- DHC is currently not in compliance with Nasdaq’s minimum bid price continued listing standard. On January 19, 2023, the company received a notification letter from Nasdaq informing that, for at least 30 consecutive business days prior to such notification, the bid price of common shares had closed below $1.00 per common share, which is the minimum required closing bid price for continued listing on Nasdaq pursuant to Listing Rule 5450(a)(1).
- Despite being a loss-making company, the executives are being paid significant compensation.
DHC – Executive Compensation
- The company’s senior housing operating portfolio’s (SHOP) is continuing its weak performance. The company noted that when compared with October 2019 levels, occupancy in this segment was down 600 bps.
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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