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: Citizens, Inc. (NYSE: CIA)
Today’s penny stock pick is the insurance holding company, Citizens, Inc. (NYSE: CIA).
Citizens, Inc. provides life insurance products in the United States and internationally. The company operates in two segments, Life Insurance and Home Service Insurance. The Life Insurance segment sells U.S. dollar-denominated whole life insurance, endowment, and critical illness policies to non-U.S. residents through independent marketing agencies and consultants. The Home Service Insurance segment offers final expense life insurance and critical illness products to middle- and lower-income households in Louisiana, Mississippi, and Arkansas. This segment provides its products and services through funeral homes and independent agents. It also provides accident and health insurance policies.
Website: https://www.citizensinc.com/
Latest 10-k report: https://www.citizensinc.com/wp-content/uploads/2024/04/Citizens-Annual-Report-Final-for-website.pdf
Analyst Consensus: Not covered by Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- The company’s fourth-quarter revenues surpassed estimates as well as improved year over year.
- Hedge Funds Increased Holdings by 68.8K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- CIA reported a 75% increase in total insurance issued year-over-year to $307.6 million. Total revenues rose 4% to $61.7 million after direct first-year life and accident and health premiums rose 70%.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern: The daily chart shows that the stock has currently formed 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.
CIA – 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 MA: The stock is currently above its 200-day SMA, indicating that the bulls are currently in 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 and 200-week SMA, indicating that the bulls are firmly in control.
CIA – Weekly Chart
#6 Bullish RSI: In the weekly chart, the RSI is above 50 and moving higher. 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 CIA is above the price of $5.00.
Target Prices: Our first target is $6.20. If it closes above that level, the second target price is $7.20.
Stop Loss: To limit risk, place a stop loss at $4.30. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 90%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $2.20. 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:
- A substantial majority of the company’s direct insurance premiums, approximately 70% as of December 31, 2023, are from policyholders in foreign countries, primarily those in Latin America and the Pacific Rim. This exposes CIA to unknown risks related to foreign regulation, foreign currency restrictions, and political instability.
- The company had faced legal proceedings for allegedly falsely claiming that most of the funds from their insurance policies were directly invested in U.S. Treasury Bond.
- The insurance industry is highly vulnerable to money laundering. Some of the company’s top international markets, such as Colombia and Venezuela, are countries that have been identified by the U.S. Department of the Treasury as jurisdictions of high risk for money laundering.
- The company has a history of legal proceedings. In Citizens Ins. v. Daccach, Dr. Fernando Hakim Daccach, representing a class, alleged that Citizens Insurance Company of America (CICA) and its related entities sold unregistered securities from Texas to nonresidents, violating the Texas Securities Act.
- Citizens Inc. (CIA), and specifically its Bermuda-domiciled subsidiary CICA Ltd., are subject to extensive supervision and regulation by the Bermuda Monetary Authority (BMA) and compliance with Bermuda law, including the Bermuda Insurance Act.
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