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: Transocean Ltd. (NYSE: RIG)
Today’s penny stock pick is the drilling company, Transocean Ltd. (NYSE: RIG).
Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide. It contracts mobile offshore drilling rigs, related equipment, and work crews to drill oil and gas wells. The company operates a fleet of mobile offshore drilling units, consisting of ultra-deepwater floaters and harsh environment floaters. It serves integrated energy companies, government-owned or government-controlled energy companies, and other independent energy companies.
Website: https://www.deepwater.com
Latest 10-k report: https://investor.deepwater.com/static-files/6dd0ed2b-cf5a-4cc0-89a6-82bafecd9cae
Analyst Consensus: As per TipRanks Analytics, based on 10 Wall Street analysts offering 12-month price targets for RIG in the last 3 months, the stock has an average price target of $5.86, which is nearly 26% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders placed Informative Buys of Shares Worth $50.0M in the Last 3 Months.
Insiders | Source: TipRanks.com
- Hedge Funds Increased Holdings by 4.6M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
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.
RIG – 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.
RIG – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 RIG is above the price of $4.75.
Target Prices: Our first target is $6.50. If it closes above that level, the second target price is $7.50.
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 37% to 58%.
For a risk of $0.85, our first target reward is $1.75, and the second target reward is $2.75. 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.
RIG – Consolidated Statements of Operations
- The company has ongoing legal proceedings. The asbestos litigation alleges that the company used or manufactured asbestos-containing drilling mud additives for use in connection with drilling operations, claiming negligence, product liability, strict liability, and claims allowed under the Jones Act and general maritime law.
- The offshore drilling industry is highly cyclical and is impacted by oil and natural gas price levels and volatility.
- RIG has customer concentration risk. As of February 14, 2024, the customers with the most significant aggregate amount of contract backlog associated with the company’s drilling contracts were Petrobras, Shell, and Chevron, representing approximately 31 percent, 25 percent, and 10 percent, respectively, of the total contract backlog.
- The company has significant debt. On December 31, 2023, RIG’s total debt was $7.41 billion, of which $2.34 billion was secured.
- Despite being a loss-making company, the executives are being paid millions as compensation.
RIG – Executive Compensation
an 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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