If This High Risk / High Reward Stock Breaks Out, Buy It

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: Denison Mines Corp (NYSE: DNN)

Today’s penny stock pick is the Canadian uranium exploration, development, and production company, Denison Mines Corp (NYSE: DNN).

Denison Mines Corp operates as a uranium exploration and development company in Canada. Its flagship project is the 95% interest-owned Wheeler River uranium project located in the Athabasca Basin region in northern Saskatchewan. The company’s Athabasca Basin exploration portfolio consists of numerous projects covering approximately 310,000 hectares.

The company is also engaged in mine decommissioning and environmental services through its Denison Environmental Services (DES) division and is the manager of Uranium Participation Corporation (UPC), a publicly traded company that invests in uranium oxide and uranium hexafluoride.

Website: www.denisonmines.com

Latest 10-k report (40-F):  https://sec.report/Document/0001654954-21-003407/

Analyst Consensus: As per TipRanks Analytics, four Wall Street analysts are offering 12-month price targets for DNN in the last 3 months. The average price target for DNN is $1.55, which is a 10.71% Upside from current levels.

Potential Catalysts / Reasons for the Hype:

• Rumors that Cameco Corporation (CCJ) or NexGen Energy (NXE) would acquire DNN.
• The company receiving $5.8 million in connection with the conversion of the Uranium Participation Corporation into the Sprott Physical Uranium Trust.
• The news of DNN completing 50% acquisition of JCU Canada Exploration Company for $20.5 million.
• Discovery of high-grade uranium outside of the Phoenix Zone A high-grade domain. The company also increased its anticipated ISR mining head grade at Phoenix by 50% in the second quarter.

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Double Bottom Pattern: The daily chart shows that the stock has been forming a double bottom pattern. This is marked in the chart in pink color. A double bottom pattern is a bullish reversal pattern and a breakout from it would indicate that the stock could move upwards.

#2 Price Above MAs: The stock is trading above its 50-week as well as 200-week SMA, indicating that the bulls are still in control.

#3 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line is moving higher 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 Flag Pattern: The weekly chart shows that the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in purple color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case).

#6 Bullish Stoch: In the weekly chart, the %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for DNN is if it breaks out of the double bottom pattern and closes above the near-term resistance level. This translates to a price of above $1.50.

Target Prices: Our target prices are $2.00 and $3.00.

Stop Loss: To limit risk, place a stop loss at $1.23. Note that the stop loss is on a closing basis.

Our target potential upside is 33% to 100%.

For a risk of $0.27, our first target reward is $0.50, and the second target reward is $1.50. This is a nearly 1:2 and 1:6 risk-reward trade.

In other words, this trade offers 2x to 6x more potential upside than downside.

Potential Risks / Red Flags:

1. DNN has been a loss-making company. As per the latest annual report, the company had reported a loss of $16.30 million (Canadian dollars) for the Year Ended December 31, 2020.
   

   DNN – Annual Report

2. The company has a long history of name changes.
   1. Denison Nickel Mines, Limited was incorporated by letters patent on November 30th 1936. On May 18, 1949 Denison Nickel Mines, Limited changed its name to North Denison Mines Limited.
   2. On February 17, 1954 North Denison Mines Limited changed its name to Consolidated Denison Mines Limited
   3. On March 24, 1960 amalgamation of Consolidated Denison Mines Limited and Can-Met Explorations Limited occurred and was given new company name: Denison Mines Limited.
   4. On February 12, 1973 the company amalgamated with Stanrock Uranium Mines Limited.
   5. On May 24, 2002 by Articles of Amendment the company changed its name to: Denison Energy Inc.
   6. On September 23, 2003 by Articles of Incorporation Denison Mines Inc. was created. On March 8, 2004 Reorganization of Denison Energy Inc. – Mining and Environmental services businesses were transferred to Denison Mines Inc.
   7. On December 1, 2006 Arrangement between International Uranium Corporation, IUC Subco and Denison Mines Inc. occurred. The Amalgamated Company was named Denison Mines Corp
3. According to the latest Q2 results, the company had a net loss of CAD$2.35 million for the Three Month Ended June 30, 2021.
   

   DNN – Q2 Report

4. Denison Mines’ primary asset is the Wheeler Project, which consists of two uranium mines. Neither of the two mines is even under construction yet, with the first not even scheduled to break ground until 2023 at the earliest.
5. The company has historically been involved in selling additional shares. Over the past decade or so the share count has grown by roughly 85%. Each new share sold dilutes current shareholders.

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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