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: LianBio (NASDAQ: LIAN)
Today’s penny stock pick is the biopharmaceutical company, LianBio (NASDAQ: LIAN).
LianBio engages in developing and commercializing medicines for cardiovascular, oncology, ophthalmology, and inflammatory diseases in China and other Asian countries.
The company develops mavacamten for the treatment of obstructive and non-obstructive hypertrophic cardiomyopathy, and heart failure with preserved ejection fraction; TP-03 for the treatment of Demodex blepharitis and meibomian gland disease; NBTXR3 for the treatment of head and neck squamous cell carcinoma, and solid tumor; Infigratinib for the treatment of second-line and first-line cholangiocarcinoma, and gastric cancers; BBP-398 for solid tumors; Omilancor and NX-13 for ulcerative colitis and Crohn’s disease; LYR-210 for chronic rhinosinusitis; and Sisunatovir for respiratory syncytical virus.
It has a partnership with Tarsus Pharmaceuticals, Inc. to develop and commercialize TP-03 for the treatment of Demodex blepharitis; and Nanobiotix S.A. to develop and commercialize NBTXR3, a radioenhancer designed to be injected directly into a malignant tumor prior to standard radiotherapy.
Website: https://www.lianbio.com
Latest 10-k report: https://investors.lianbio.com/node/7616/html
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for LIAN in the last 3 months, the stock has an average price target of $6.50, which is nearly 88% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company announced a key agreement with Bristol-Myers Squibb (NYSE: BMY) regarding exclusive rights to a cardiovascular therapeutic (mavacamten) in mainland China, Hong Kong, Taiwan, Macau, Thailand, and Singapore.
- This agreement is in conjunction with the termination of the agreement LianBio inked with MyoKardia in August 2020.
- The company’s board is now undertaking “a comprehensive strategic review of the company” — phrasing that often means it’s looking for potential acquirers. The board anticipates providing an update on this strategic review in the first half of 2024.
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.
LIAN – 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 SMA as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#5 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. The stock is also trading above its 50-week SMA with a high volume, indicating that the bulls are gaining control.
LIAN – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#7 MACD above Signal Line: In the weekly chart, 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 LIAN is above the price of $3.50.
Target Prices: Our first target is $4.80. If it closes above that level, the second target price is $6.00.
Stop Loss: To limit risk, place a stop loss at $2.70. Note that the stop loss is on a closing basis.
Our target potential upside is 37% to 71%.
For a risk of $0.80, our first target reward is $1.30, and the second target reward is $2.50. 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. For the years ended December 31, 2022, and 2021, the net losses were $110.3 million and $196.3 million, respectively.
LIAN – Consolidated Statements of Operations
- The company has no insider ownership, signifying a lack of confidence by the insiders.
Ownership | Source: TipRanks.com
- The company has extensive operations in China. Uncertainties in the Chinese legal system, and any changes in the economic, political, legal, and social conditions and policies of the Chinese government or in relations between China and the United States could negatively impact the shareholders.
- Despite being a loss-making company, the executives are being paid millions as compensation.
LIAN – 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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