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: BigBear.ai Holdings, Inc. (NYSE: BBAI)
Today’s penny stock pick is the artificial intelligence and machine learning company, BigBear.ai Holdings, Inc. (NYSE: BBAI).
BigBear.ai Holdings, Inc. operationalizes artificial intelligence and machine learning at scale through its data analytics platform. The company operates through two segments, Cyber & Engineering and Analytics. The Cyber & Engineering segment offers high-end technology and management consulting services.
It focuses on the areas of cloud engineering and enterprise IT, cybersecurity, computer network operations and wireless, systems engineering, and strategy and program planning. The Analytics segment provides high-end technology and consulting services.
This segment focuses on the areas of big data computing and analytical solutions, including predictive and prescriptive analytics solutions. Its solutions assist customers in aggregating, interpreting, and synthesizing data to enable real-time decision-making capabilities.
Latest 10-k report: https://ir.bigbear.ai/sec-filings/all-sec-filings/content/0001628280-23-010166/bbai-20221231.htm (10-K), https://ir.bigbear.ai/sec-filings/all-sec-filings/content/0001628280-23-011116/bbai-20221231.htm (10-K Amended)
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for BBAI in the last 3 months, the stock has an average price target of $4.50, which is nearly 26% upside from current levels.
Potential Catalysts / Reasons for the Hype:
- Interest in AI stocks due to the recent hype around ChatGPT.
- The company recently announced a 113.25M share offering. The company filed to offer 113.25M shares of stock from its current shareholders.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
#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 Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, 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 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.
#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 BBAI is above the price of $3.66.
Target Prices: Our first target is $4.60. If it closes above that level, the second target price is $5.30.
Stop Loss: To limit risk, place a stop loss at $3.10. Note that the stop loss is on a closing basis.
Our target potential upside is 26% to 45%.
For a risk of $0.56, our first target reward is $0.94, and the second target reward is $1.64. 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.
- Corporate Insiders Sold Shares Worth $1.7M in the Last 3 Months.
- Despite being a loss-making company, the executives are being paid significant compensation.
- Hedge Funds Decreased Holdings by 19.0K Shares Last Quarter.
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!
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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Source: Trades of the Day