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 together with its subsidiaries, engages in the production, distribution, and sale of cannabis and hemp-based products for recreational and medical purposes primarily in Canada, the United States, and Germany. It operates through two segments, Global Cannabis and Other Consumer Products.
The company’s products include dried cannabis flower, extracts and concentrates, beverages, gummies, and vapes. It offers its products under the Tweed, 7ACRES, 7ACRES Craft Collective, DOJA, Ace Valley, Quatreau, Deep Space, First + Free, Surity Pro, Spectrum Therapeutics, Vert, Tokyo Smoke, Twd, Martha Stewart CBD, DNA Genetics, BioSteel, Storz & Bickel, This Works, HiWay, Simple Stash, Whisl, and Truverra brands.
Website: https://www.canopygrowth.com
Latest 10-k report: https://sec.report/Document/0001564590-22-021923/
Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for CGC in the last 3 months, the stock has an average price target of $3.97, which is nearly 24% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Recent reports that Senate Majority Leader Chuck Schumer, the New York Democrat, said in a Sunday debate that Congress is getting “very close” to passing a cannabis banking and expungements measure. This agreement on a marijuana bill would allow legal pot businesses access to banking services.
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.
CGC – 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 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.
CGC – Weekly Chart
#7 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 CGC is above the price of $3.80.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $8.00.
Stop Loss: To limit risk, place a stop loss at $2.50. Note that the stop loss is on a closing basis.
Our target potential upside is 58% to 111%.
For a risk of $1.30, our first target reward is $2.20, and the second target reward is $4.20. 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 in fiscal 2022 was $320.5 million, as compared to a net loss of $1.7 billion in fiscal 2021.
CGC – Consolidated Statements of Operations
- The company was formerly known as Tweed Marijuana Inc. and changed its name to Canopy Growth Corporation in September 2015.
- Corporate Insiders Sold Shares Worth $26.9K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Hedge Funds Decreased Holdings by 41.4K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
CGC – Executive Compensation
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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