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: Transocean LTD (NYSE: RIG)
Today’s penny stock pick is the commander of one of the largest deep-water and ultra-deep-water fleets in the world, Transocean LTD (NYSE: RIG).
Transocean LTD provides offshore contract drilling services for oil and gas wells worldwide. It contracts its drilling rigs, related equipment, and work crews to drill oil and gas wells. As of February 22, 2021, the company owned or had partial ownership interests in and operated a fleet of 37 mobile offshore drilling units, including 27 ultra-deepwater and 10 harsh environment floaters. It serves integrated oil companies, government-owned or government-controlled oil companies, and other independent oil companies.
Website: www.deepwater.com
Latest 10-k report: https://sec.report/Document/0001451505-21-000020/
Analyst Consensus: Not covered by Analysts.
Potential Catalysts / Reasons for the Hype:
- The soaring oil prices. Recent prices are some of the highest prices for crude since 2014.
- Hedge Funds Increased Holdings by 1.7M Shares Last Quarter.
RIG – Hedge Funds/ Source: TipRanks.com
- The company has a $7.1 billion contract backlog as of December 2021, which equates to almost three years’ worth of revenue.
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 MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 Bullish RSI: The RSI is above 50 and moving higher, indicating possible bullishness.
#5 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.
#6 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 is a possible bullish indication.
RIG – Weekly Chart
#7 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart as well, 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 RIG is above the price of $4.15.
Target Prices: Our first target is $5.80. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss below $3.20. Note that the stop loss is on a closing basis.
Our target potential upside is 40% to 69%.
For a risk of $0.95, our first target reward is $1.65, and the second target reward is $2.85. 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 – Net Loss
- RIG faces increased climate-related litigation with respect to its operations both in the U.S. and around the world. Governmental and other entities in various U.S. states, such as California and New York, have filed lawsuits against coal, gas, oil, and petroleum companies.
- Some of the company’s subsidiaries are named as defendants in numerous lawsuits alleging personal grievances or injury, including as a result of exposure to asbestos or toxic fumes or resulting from other occupational diseases.
- RIG’s patent for dual-activity technology has been successfully challenged in certain jurisdictions.
- The company is subject to a number of significant tax disputes.
- Despite being a loss-making company, the executives are being paid millions in compensation.
RIG – Executive Compensation
- At the end of September, RIG had $900 million in cash and cash equivalents and $7.3 billion in total debt.
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.