We recently started a series called “Penny Stock of the Day”. These ideas are geared for 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: Martin Midstream Partners L.P. (NASDAQ: MMLP)
Today’s penny stock pick is the natural gas distribution company, Martin Midstream Partners L.P. (NASDAQ: MMLP).
Martin Midstream Partners L.P engages in terminalling, processing, storage, and packaging of petroleum products and by-products primarily in the United States Gulf Coast region.
The company’s business lines include terminalling, processing, storage, and packaging services for petroleum products and by-products including the refining of naphthenic crude oil; land and marine transportation services for petroleum products and by-products, chemicals, and specialty products; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and natural gas liquids marketing, distribution and transportation services.
Website: www.mmlp.com
Latest 10-k report: https://sec.report/Document/0001176334-21-000061/
Analyst Consensus: Not covered by analysts
Potential Catalysts / Reasons for the Hype:
- Insiders buying a significant quantity of stock during the past three months. As per TipRanks analytics, corporate insiders had bought shares worth $3.4 million in the Last 3 Months.
MMLP – Insider Transactions
- Rumors of acquisition plans by Plains All American (PAA).
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Flag Pattern Breakout: The daily chart shows that the stock was in a strong uptrend after which it started consolidating and was in a narrowing range. This is a classic flag pattern and is marked in the chart in pink color. A flag is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern, indicating bullishness.
MMLP – Daily Chart
#2 Above MAs: The stock price is currently above its short-term moving average of 50-day as well as the long-term moving average of 200-day SMA. This is a possible bullish sign.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line is greater than the (-DI) line, the ADX and (+DI) lines are above the (-DI) line, and the ADX line is moving up from below the (-DI) and (+DI) lines.
#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 Bullish Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#6 Ascending Triangle Pattern: The weekly charts shows that the stock has been forming an ascending triangle pattern. This pattern is marked in purple color lines. An Ascending Triangle pattern is a bullish pattern. Once a breakout from the upper line occurs, it usually signifies the start of a new bullish trend.
MMLP – Weekly Chart
#7 Bullish Stoch: In the weekly chart as well, the %K line of the stochastic is above the %D line, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for MMLP is above the price of $3.35.
Target Prices: Our target prices are $4.00 and $5.50.
Stop Loss: To limit risk, place a stop loss at $2.95. Note that the stop loss is on a closing basis.
Our target potential upside is 19% to 64%.
For a risk of $0.40, our first target reward is $0.65, and the second target reward is $2.15. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has been a loss-making company. The company had reported a net loss of 6.7 Million for 2020.
MMLP – Annual Report
- MMLP’s latest quarterly report shows that the company’s debt has increased from $513 Million to $517 Million QoQ, total liabilities increased from $614 Million to $628 Million, and the total partnership deficit increased from $44 Million to $51 Million.
MMLP – Quarterly Report
- In spite of being a loss-making company, the company executives are being paid good compensation.
MMLP – Executive Compensation
- Martin Midstream Partners (MMLP) had come close to filing for bankruptcy in August but managed to exchange most of its 2021 unsecured notes for higher interest secured notes due in 2024 and 2025. Although Martin bought itself some time with its August exchange and cash tender offer, this increased its cash interest costs from around $38 million to $51 million per year
- The covenants in the company’s debt instruments restrict its ability to incur additional indebtedness. As of December 31, 2020, the company only has the ability to borrow approximately $20.5 million under our revolving credit facility due to such financial covenants.
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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