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: Baytex Energy Corp. (NYSE: BTE)
Today’s penny stock pick is the energy company, Baytex Energy Corp. (NYSE: BTE).
Baytex Energy Corp. engages in the acquisition, development, and production of crude oil and natural gas in the Western Canadian Sedimentary Basin and in the Eagle Ford, the United States. The company offers light oil and condensate, heavy oil, natural gas liquids, and natural gas. It also holds interest in the Eagle Ford property in Texas; Viking and Lloydminster properties in Alberta and Saskatchewan; and Peace River and Duvernay properties in Alberta.
Website: https://www.baytexenergy.com
Latest 10-k report: https://www.baytexenergy.com/content/uploads/2024/03/2023-Annual-Report.pdf
Analyst Consensus: As per TipRanks Analytics, based on 9 Wall Street analysts offering 12-month price targets for BTE in the last 3 months, the stock has an average price target of $4.71, which is nearly 33% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company is projected to generate US$528 million in 2024 free cash flow at current strip prices. This is around US$138 million more than Baytex’s estimates from December 2023, as it benefits from improved oil strip prices.
- Positive sentiment related to the Trans mountain pipeline opening and the first order from China for 550,000 barrels. China’s Sinochem Group purchased one of the first crude cargoes shipped through a new pipeline in Canada, which is designed to move oil from landlocked Alberta to the Pacific Coast for export.
- The improvement in the assumed odds of BTE winning its tax dispute with the Canada Revenue Agency.
- Rumors of a takeover.
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 orange color lines. This is a possible bullish indication.
BTE – 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 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.
BTE – 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 BTE is above the price of $3.60.
Target Prices: Our first target is $4.50. If it closes above that level, the second target price is $5.20.
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 25% to 44%.
For a risk of $0.50, our first target reward is $0.90, and the second target reward is $1.60. 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. BTE reported a net loss of $233.4 million for 2023.
BTE – Consolidated Statements of Operations
- The company’s financial condition is substantially dependent on, and highly sensitive to, the prevailing prices of crude oil and natural gas. In addition, a transition away from the use of petroleum products, which may include conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas and technological advances in fuel economy and renewable energy, could reduce demand for oil and natural gas.
- The company’s C$3.4 billion (US$2.5 billion) Ranger deal had resulted in BTE assuming the debt load of Ranger Oil, thereby nearly tripling its net debt balance. BTE’s new capital allocation plan calls for allocating 50% of free cash flow to dividends and share repurchases which also reduces the pace of debt reduction.
- The company had to hedge 40% of its oil exposure for 12 months to secure financing on acceptable terms, making BTE unable to benefit from the high oil prices.
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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