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: Canopy Growth Corporation (NASDAQ: CGC)
Today’s penny stock pick is the cannabis company, Canopy Growth Corporation (NASDAQ: CGC).
Canopy Growth Corporation engages in the production, distribution, and sale of cannabis and hemp-based products for recreational and medical purposes primarily in the United States, Canada, Germany, and internationally. It operates through Canada Cannabis, International Markets Cannabis, and Storz & Bickel segments.
The company offers dried flower, pre-rolled joints, oils, softgel capsules, infused beverages, edibles comprising gummies, and topical formats, as well as vaporizer devices. It sells its products under the Tweed, 7ACRES, DOJA, Deep Space, HiWay, Maitri, Twd., Vert, Spectrum Therapeutics, Canopy Medical, Storz & Bickel, Martha Stewart, and Wana brands. The company was formerly known as Tweed Marijuana Inc. and changed its name to Canopy Growth Corporation in September 2015.
Website: https://www.canopygrowth.com/
Latest 10-k report: https://api.kscope.io/downloadDoc?key=8edf20a7-33b0-11ed-9981-0ed29589fc89&content=sec&format=pdf&docid=0000950170-24-066240&inline
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for CGC in the last 3 months, the stock has an average price target of $3.31, which is nearly 31% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The U.S. delayed Canada tariffs by 30 days, adding to bullish sentiment for cannabis stocks.
- An overall optimism for the sector under Trump’s presidency. Trump has endorsed the SAFE Banking Act and the reclassification of cannabis.
- The company is slated to release its third quarter fiscal 2025 financial results on February 7, 2025, before market opens.
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 with a high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.
CGC – Daily Chart
#2 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#3 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.
#4 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.
CGC – Weekly Chart
#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#6 Bullish RSI: In the weekly chart, the RSI is moving higher from oversold levels. 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 CGC is above the price of $2.80.
Target Prices: Our first target is $4.20. If it closes above that level, the second target price is $5.20.
Stop Loss: To limit risk, place a stop loss at $2.00. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 90%.
For a risk of $1.10, our first target reward is $1.80, and the second target reward is $3.80. 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. The net loss from continuing operations was $483.7 million in fiscal 2024 and $3.1 billion in fiscal 2023.
CGC – Consolidated Statements of Operations
- The company has ongoing legal proceedings. On December 29, 2023, a request for arbitration was made to the Company. Damages are being sought in the amount of US$32,667 against the Company based on alleged breaches of a Share Purchase Agreement (SPA) including breaches of the duty of good faith and honest performance in relation to certain milestone payments in the SPA.
- Despite being a loss-making company, the executives are being paid significant compensation.
CGC – Executive Compensation
- The Company is the subject of an investigation that relates to the Company’s accounting policies and related matters (BioSteel Review).
- There have been a number of highly publicized cases involving lung and other illnesses and deaths that appear to be related to vaporizer devices and/or products used in such devices. This may materially and adversely affect the market for vaporizer products and expose the company to litigation and additional regulation.
- CGC faces competition from illegal market participants that are unlicensed and unregulated, and that are selling cannabis and cannabis products.
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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