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: Companhia Siderúrgica Nacional (NYSE: SID)
Today’s penny stock pick is the integrated steel producer, Companhia Siderúrgica Nacional (NYSE: SID).
Companhia Siderúrgica Nacional operates as an integrated steel producer in Brazil and Latin America. It operates through five segments: Steel, Mining, Logistics, Energy, and Cement. The company offers flat steel products, such as high, medium, low carbon, micro-alloyed, ultra-low-carbon, and interstitial free slabs; hot-rolled products, including heavy and light-gauge hot-rolled coils and sheets; cold-rolled products comprising cold-rolled coils and sheets; galvanized products; tin mill products consisting of flat-rolled low-carbon steel coils or sheets; and profiles, channels, UPE sections, and steel sleepers for the distribution, packaging, automotive, home appliance, and construction industries.
It primarily explores for iron ore reserves at Casa de Pedra and Engenho mines located in the city of Congonhas; and limestone and dolomite at the Bocaina mine located in the city of Arcos in the state of Minas Gerais, Brazil, as well as produces tin.
In addition, the company operates railway and port facilities; produces and sells cement to construction material stores, home centers, concrete producers, construction companies, mortar industries, and cement artifact producers; and generates electric power from its thermoelectric co-generation and hydroelectric power plants.
Website: https://www.csn.com.br
Latest 10-k report: https://otp.investis.com/clients/us/csn/SEC/sec-show.aspx?FilingId=16596954&Cik=0001048179&Type=PDF&hasPdf=1
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for SID in the last 3 months, the stock has an average price target of $4.10, which is nearly 23% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- For Q3, the company reported adjusted EBITDA increased 4% from the same period last year as iron ore production and shipments rose to a record quarterly high.
- The company offers an attractive dividend yield.
- The general recovery in global steel prices.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.
SID – Daily Chart
#2 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.
#3 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.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates 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, indicating that the bulls are gaining control.
SID – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 SID is above the price of $3.40.
Target Prices: Our first target is $4.00. If it closes above that level, the second target price is $4.70.
Stop Loss: To limit risk, place a stop loss below $3.00. Note that the stop loss is on a closing basis.
Our target potential upside is 18% to 38%.
For a risk of $0.40, our first target reward is $0.60, and the second target reward is $1.30. 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:
- As of December 31, 2022, the company and its subsidiaries were defendants in 10,290 labor claims, for which a provision of R$375.4 million was recorded. Most of these claims relate to alleged subsidiary and/or joint liability with respect to independent contractors, salary equalization, health hazard premiums and hazardous duty premiums, overtime pay, health plan, indemnity claims resulting from other alleged occupational diseases or on-the-job accidents, breaks between working hours and differences in profit sharing.
- The company has zero insider ownership, indicating a possible lack of confidence by insiders.
Ownership | Source: TipRanks.com
- SID has indemnity claims resulting from contractual disputes and collections, claims for damages and compensation related to its commercial and industrial activities, and real estate disputes. As of December 31, 2022, the company recorded a provision of R$851 million for these civil contingencies.
- Hedge Funds Decreased Holdings by 6.0M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company is a defendant in legal and administrative proceedings involving claims in the aggregate amount of R$47,688 million as of December 31, 2022.
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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