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: Lumen Technologies, Inc. (NYSE: LUMN)
Today’s penny stock pick is the American telecommunications company, Lumen Technologies, Inc. (NYSE: LUMN).
Lumen Technologies, Inc. a facilities-based technology and communications company, provides various integrated products and services under the Lumen, Quantum Fiber, and CenturyLink brands to business and residential customers in the United States and internationally.
The company operates in two segments, Business and Mass Markets. It offers compute and application services, such as edge cloud services, IT solutions, unified communication and collaboration solutions, colocation and data center services, content delivery services, and managed security services; and IP and data services, including VPN data network, Ethernet, internet protocol (IP), and voice over internet protocol.
The company also provides fiber infrastructure services comprising high bandwidth optical wavelength networks; and unlit optical fiber and related professional services. In addition, it offers voice and other services, including private line services, a direct circuit or channel specifically dedicated for connecting two or more organizational sites; a portfolio of traditional time division multiplexing voice services; and synchronous optical network-based ethernet, legacy data hosting services, and conferencing services.
Website: https://www.lumen.com
Latest 10-k report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000018926/cc0f35c2-7662-4ee9-b17f-da5ca881bec2.pdf
Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for LUMN in the last 3 months, the stock has an average price target of $4.75.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Microsoft, Meta, and several other cloud companies enlisted Lumen to upgrade their AI and cloud data center infrastructure with its fiber optic cables. The cumulative value of all of those deals is equivalent to $8.5 billion.
- Hedge Funds Increased Holdings by 725.3K Shares Last Quarter.
Hedge Funds | 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.
LUMN – 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 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 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.
LUMN – Weekly Chart
#6 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 LUMN is above the price of $4.90.
Target Prices: Our first target is $6.20. If it closes above that level, the second target price is $7.30.
Stop Loss: To limit risk, place a stop loss at $4.10. Note that the stop loss is on a closing basis.
Our target potential upside is 27% to 49%.
For a risk of $0.80, our first target reward is $1.30, and the second target reward is $2.40. 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.
LUMN – Consolidated Statements of Operations
- The company has multiple ongoing legal proceedings. This includes Shareholder Class Action Suit (Houser et al. v. CenturyLink, et al), In re Lumen Technologies, Inc. Securities Litigation, Slack v. Allen, et al., Case 3:24-cv-01043-TAD-KMM, Glauber, et al. v. Lumen Technologies, Environmental Litigations, State Tax Suits, FCRA Litigation Billing Practices Suits, Huawei Network Deployment Investigations and Marshall Fire Litigation. LUMN is also currently defending several patent infringement lawsuits asserted by non-practicing entities that are seeking substantial recoveries.
- The company has significant debt. As of December 31, 2024, LUMN had approximately $13.7 billion of outstanding consolidated secured indebtedness.
- Despite being a loss-making company, the executives are being paid significant compensation.
LUMN – Executive Compensation
- The company relies on key customer contracts. LUMN would be adversely impacted if it fails to renew these complex high-value national and global customer contracts upon their expiration.
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