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: Hecla Mining Company (NYSE: HL)
Today’s penny stock pick is the precious and base metal mining company, Hecla Mining Company (NYSE: HL).
Hecla Mining Company mines for silver, gold, lead, and zinc concentrates, as well as carbon material containing silver and gold for sale to custom smelters, metal traders, and third-party processors; and doré containing silver and gold.
It owns 100% interests in the Greens Creek mine located on Admiralty Island in southeast Alaska; the Lucky Friday mine situated in northern Idaho; the Keno Hill mine located in the Keno Hill Silver District of Yukon Territory, Canada; the Casa Berardi mine located in the Abitibi region of northwestern Quebec, Canada; and the San Sebastian mine situated in the city of Durango, Mexico. Hecla Mining is one of the largest silver producers in the U.S., and Lucky Friday is one of its two largest mines.
Website: https://www.hecla.com
Latest 10-k report: https://s29.q4cdn.com/244919359/files/doc_financials/2022/418140-1-_1_Hecla-Mining_ARS_Courtesy-PDF-From-EDGAR.pdf
Analyst Consensus: As per TipRanks Analytics, based on 8 Wall Street analysts offering 12-month price targets for HL in the last 3 months, the stock has an average price target of $6.30, which is nearly 52% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The Company reported preliminary silver and gold production for Q3 2023, with silver production down 7.8% QoQ and gold production up 11.4% QoQ. The drop in silver production is attributed to issues at the Lucky Friday mine, which experienced a mine-shaft fire in September.
- The rise in prices of precious metals on macroeconomic fears.
- Corporate Insiders placed Informative Buys of Shares Worth $34.5K in the Last 3 Months.
Insiders | Source: TipRanks.com
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.
HL – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#4 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.
HL – Weekly Chart
#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 HL is above the price of $4.25.
Target Prices: Our first target is $5.00. If it closes above that level, the second target price is $5.80.
Stop Loss: To limit risk, place a stop loss at $3.80. Note that the stop loss is on a closing basis.
Our target potential upside is 18% to 36%.
For a risk of $0.45, our first target reward is $0.75, and the second target reward is $1.55. 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 company reported a net loss of $37.3 million in 2022.
HL – Consolidated Statements of Operations
- The company has ongoing legal proceedings.
- In July 2018, the U.S. Environmental Protection Agency (EPA) informed Hecla Limited that it and several other PRPs may be liable for the cleanup of the San Mateo Creek Basin, New Mexico, site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date.
- The EPA has also made a formal request to Hecla for the cleanup of the Carpenter Snow Creek Superfund site located in Cascade County, Montana.
- On July 12, 2022, the company’s Lucky Friday Mine received a Notice of Violation from the EPA alleging violations of the Clean Water Act.
- On May 24, 2019, a purported Hecla stockholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of New York against Hecla and some of its executive officers. The complaint alleges that Hecla, under the authority and control of the individual defendants, made certain material false and misleading statements and omitted certain material information regarding Hecla’s Nevada Operations.
- Hedge Funds Decreased Holdings by 127.5K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
HL – Executive Compensation
- The company has a substantial amount of debt that could impair its financial health. As of December 31, 2022, HL had a total indebtedness of approximately $527.2 million, primarily in the form of Senior Notes.
- HL has customer concentration risk. For the fiscal year ended December 31, 2022, HL’s three largest customers accounted for approximately 35%, 24%, and 11%, respectively, of its total revenues.
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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Source: Trades of the Day