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: Ambev S.A. (NYSE: ABEV)
Today’s penny stock pick is the brewing company, Ambev S.A. (NYSE: ABEV).
engages in the production, distribution, and sale of beer, draft beer, carbonated soft drinks, malt and food, other alcoholic beverages, and non-alcoholic and non-carbonated products in Brazil, Central America and Caribbean, Latin America South, and Canada.
It offers beer primarily under the Skol, Brahma, Antarctica, Brahva, Budweiser, Bud Light, Beck, Leffe, Hoegaarden, Balboa ICE, Balboa, Atlas Golden Light, Atlas, Bucanero, Cristal, Mayabe, Presidente, Presidente Light, Brahma Light, Bohemia, The One, Corona, Modelo Especial, Stella Artois, Quilmes Clásica, Paceña, Taquiña, Huari, Becker, Cusqueña, Michelob Ultra, Busch, Pilsen, Ouro Fino, Bud 66, Banks, Deputy, Patricia, Labatt Blue, Alexander Keith’s, and Kokanee brands.
The company also provides carbonated soft drinks, bottled water, isotonic beverages, energy drinks, coconut water, powdered and natural juices, and ready-to-drink teas under the Guaraná Antarctica, Gatorade, H2OH!, Pepsi Black, Lipton Iced Tea, Fusion, Pepsi-Cola, Canada Dry, Squirt, Red Rock, Red Bull, Seven Up, Nutrl, Bud Light Seltzer, Palm Bay, and Mike’s brands. It offers its products through a network of third-party distributors and a direct distribution system.
Website: https://www.ambev.com.br
Latest 10-k report: https://api.mziq.com/mzfilemanager/v2/d/c8182463-4b7e-408c-9d0f-42797662435e/59b89652-7879-cab5-0d99-de5adf802adc?origin=1
Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for ABEV in the last 3 months, the stock has an average price target of $3.17, which is nearly 42% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Ambev S.A. stands as the largest beverage company in Brazil, controlling over 60% of the beer market in the country while maintaining a strong presence across Latin America. The Brazil beer market is projected to grow at a CAGR of over 4.83% from 2023 to 2028, according to the Brazil Beer Market Overview, 2028 report by Bonafide Research. This growth trajectory presents significant opportunities for Ambev S.A. to expand its market share and profitability.
- The company has reported increasing net income year-over-year.
ABEV – Consolidated Statements of Comprehensive Income
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 with a high volume. This is shown as purple color lines. This is a possible bullish indication.
ABEV – 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 purple color dotted line. This looks like a good area for the stock to move higher.
ABEV – 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, 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 ABEV is above the price of $2.30.
Target Prices: Our first target is $3.30. If it closes above that level, the second target price is $4.00.
Stop Loss: To limit risk, place a stop loss at $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 74%.
For a risk of $0.50, our first target reward is $1.00, and the second target reward is $1.70. 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:
- Hedge Funds Decreased Holdings by 1.2M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- As of December 31, 2023, ABEV had several tax claims pending against it, including judicial and administrative proceedings. Most of these claims relate to income taxes (IRPJ and CSLL), Social Contributions on Gross Revenues (PIS and COFINS), ICMS Value-Added Tax and IPI Excise Tax. As of December 31, 2023, the company is party to tax proceedings with a total estimated possible risk of loss of R$95.3 billion.
- ABEV is involved in more than 21,000 labor claims.
- In May 2021, the Brazilian labor inspection authorities determined that the company was jointly and severally liable for human rights violations committed by Sider (a third-party transportation company) with respect to the working conditions of 23 foreign employees, under the terms of Brazilian Labor Law, including violations of article 444 of Law-Decree No. 5,452 and article 2-C of Law No. 7,998.
- As of December 31, 2023, ABEV is involved in more than 3,700 civil claims, including third-party distributors and product-related claims.
- The company has significant debt. ABEV’s total long-term debt is R$589.8 million. The company’s total debt, including current and non-current interest-bearing loans and borrowing, increased by R$670.2 million in 2022, while its cash and cash equivalents and current investment securities less bank overdrafts decreased by R$3,205.2 million in 2022.
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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