We recently started a series called “Penny Stock of the Day”. These ideas are geared toward 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: Lloyds Banking Group plc (NYSE: LYG)
Today’s penny stock pick is the financial services company, Lloyds Banking Group plc (NYSE: LYG).
Lloyds Banking Group plc provides a range of banking and financial services in the United Kingdom and internationally. It operates in three segments: Retail; Commercial Banking; and Insurance, Pensions and Investments.
The Retail segment offers a range of financial service products, including current accounts, savings, mortgages, motor finance, unsecured loans, leasing solutions, and credit cards to personal customers. The Commercial Banking segment provides lending, transactional banking, working capital management, risk management, and debt financing services to small and medium-sized entities, corporates, and institutions.
The Insurance, Pensions, and Investments segment offers insurance, investment, and pension management products and services. It also provides digital banking services. The company offers its products and services under the Lloyds Bank, Halifax, Bank of Scotland, Scottish Widows, MBNA, Schroders Personal Wealth, Black Horse, Lex Autolease, Birmingham Midshires, LDC, AMC, Embark Group, Citra, IWeb, Cavendish Online, and Tusker brand names.
Website: https://www.lloydsbankinggroup.com/
Latest 10-k report: https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2023/q4/2023-lbg-form-20f.pdf
Analyst Consensus: Not Covered By Wall Street analysts in the last 3 months.
Potential Catalysts / Reasons for the Hype:
- The company has reported increasing next profit year-over-year.
LYG – Consolidated Statements of Operations
- Hedge Funds Increased Holdings by 812.9K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The Group recently launched a “Your Credit Score” tool to help customers manage their financial health, which has been linked to increased take-up in personal loans and improved credit quality.
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.
LYG – 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 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 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. The stock is also trading above its 50-week as well as 200-week SMA, indicating that the bulls are in control.
LYG – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart and is also moving higher from oversold levels, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for LYG is above the price of $2.90.
Target Prices: Our first target is $4.00. If it closes above that level, the second target price is $4.80.
Stop Loss: To limit risk, place a stop loss at $2.30. Note that the stop loss is on a closing basis.
Our target potential upside is 38% to 66%.
For a risk of $0.60, our first target reward is $1.10, and the second target reward is $1.90. 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’s contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were £2,849 million as of 31 December 2023 (2022: £2,986 million).
- The FCA has opened an investigation into the company’s compliance with domestic UK money laundering regulations and the FCA’s rules and Principles for Businesses, with a focus on aspects of its anti-money laundering control framework.
- The company has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010.
- LYG’s certain Group companies, together with other panel banks, were named as defendants in ongoing private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate.
- The company’s operations are concentrated in the UK. Its earnings are predominantly generated in the UK. Hence LYG is subject to inherent and indirect risks arising from general macroeconomic conditions in the UK in particular, but also in the Eurozone, the U.S., Asia, and globally.
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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