Tesla’s stock has seen huge volatility in 2017. The stock rose from about $215 at the start of the year to hit a high of $386.99 on June 23 – an increase of 80%. Thereafter, it fell more than 21% within a matter of 15 days. Tesla is a difficult stock to analyze as the usual valuation metrics don’t apply to it.
- Tesla is changing the way we drive but it will take time for the change to happen
- Tesla’s cars are popular in their segment
- Model 3 is the key for the company’s future
- The company is diversifying beyond manufacturing cars
- Electric vehicle competition is heating up
- At the current valuation, Tesla can’t afford any errors
- Due to high risk and uncertainty, it is better to avoid this stock as a long-term bet
Out of the 16 analysts who offer a 12-month target price for Tesla Inc, the highest is $464, while the lowest is $155 and the median is $309.5. It has seven outperform/buy recommendations and seven underperform/sell recommendations. Nine analysts rate the stock as a hold. That shows the extent of division among the analysts.
But why is there such a large disparity in analysts’ expectations?
Tesla is a disruptive technology
Tesla is not like any other automobile company that manufactures and sells cars. It is attempting to revolutionize the sector and change the way we drive. In pursuing this dream, the company will stumble along the way and face numerous roadblocks. Therefore, to analyze Tesla with the same performance metrics as the other car manufacturers is a futile exercise.
The believers in the company are confident that Tesla will be able to achieve its objective and assume a leadership position in the future. Hence, they are valuing Tesla with a high premium compared to the other automakers.
The non-believers, on the other hand, feel that the other automobile manufacturers will catch up with Tesla, which will prevent it from commanding a sizeable lead over other companies. Hence, they have valued Tesla like any other car company.
So, as investors, what should we do?
Before we dive into the specific details of Tesla, let’s first check the market share of electric vehicles out of the total car sales.
Current market share of electric cars
Globally, the number of electric vehicles in 2016 rose to 2 million, an increase of 60% over the previous year, according to the International Energy Agency (IEA).
However, even with the increase, the total share of the plug-in and battery-operated vehicles is only a minuscule 0.2% of the total light-duty vehicles sold. Nevertheless, the numbers will increase in the years ahead, as various countries move towards reducing pollution.
Electric Vehicle Initiative is a program involving major developed nations like the US, China, parts of Europe and the UK, which aims to increase the market share of electric vehicles to 30% by 2030. India, though not a part of the above group – but has more than a billion in population and a growing middle class – has said that it wants to sell only electric cars by the end of the next decade.
Optimistic figure by BP Chief Economist Spencer Dale is for the electric vehicle market to grow to 450 million by 2035. The future for electric vehicles looks promising.
Is Tesla a leader in its segment?
Source: Inside EVs
The monthly sales figures above show that two of Tesla’s models are among the top 5 selling electric cars in the US. This shows that the current models of Tesla are popular and in demand.
But, what does the analyst community expect from Tesla in the future?
Tesla invests heavily in R&D and is a leader in revolutionizing the plug-in technology. The efforts of today will benefit Tesla in the future to sell more cars.
The latest Long-Term Electric Vehicle Outlook by Bloomberg New Energy Finance puts Tesla in the driver’s seat and expects it to emerge as “the stand-out” with total sales of 709,000 vehicles by 2021.
“If they can stick to the Model 3 timeline, they’re going to be at the front edge of this for a while,” BNEF analyst Colin McKerracher said of Tesla in a phone interview to Bloomberg.
As shown above, expectations are that Tesla will extend its lead over the other car makers in the next five years.
Huge expectations from the Model 3 launch
Currently, the deliveries of the two cars, Model S and Model X has plateaued for the past four quarters. However, there is a huge expectation from the new car, Model 3.
This is the car that is likely to boost Tesla’s car sales exponentially, because it has been priced attractively at $35,000, way lower than its two current offerings. This helps a number of people to own a top-class electric car at an affordable price. Its popularity can be gauged from the 400,000 pre-orders – people who have paid to reserve a Model 3 car.
Elon Musk’s tweets confirm that the first delivery of 30 cars will be given to the lucky owners on July 28. Thereafter, in August, the company expects to manufacture 100 units and increase it to 1500 in September. It hopes to reach 20,000 cars by the end of the year.
Eventually, The Verge expects Tesla to manufacture 500,000 cars annually. Therefore, the next few months will be important for Tesla.
The user reviews of the new car and the company’s ability to meet production timelines will affect its stock price.
Tesla is planning to expand beyond manufacturing cars
While valuing Tesla, one should keep in mind that it isn’t only a car manufacturing company. In order to realize the dream of electrifying the way we travel, Tesla had to bring down the cost of the Lithium-ion batteries and also mass produce them.
This led to the birth of Gigafactory, a facility, which will have a capacity of up to 35 gigawatt hours of cell production and 50 gigawatt hours of pack production by 2018, reports Bloomberg.
Tesla plans to manufacture battery packs for homes and for backup of the electric grid. It has already inked a deal to supply 20 megawatts/80 megawatt-hours of energy storage to Southern California Edison.
Tesla’s purchase of SolarCity Corp., underlines its goal to become a clean-energy company in the future.
What are Tesla’s competitors doing?
While Tesla is out to change the way we drive, the traditional automakers have taken note of the changing requirement of the public for a cleaner vehicle.
Therefore, the big auto companies like General Motors, Nissan, Ford, Toyota are also jumping into this fray with their own electric or plug-in hybrid cars.
Volvo, the Swedish car manufacturer, owned by the Chinese automotive conglomerate Geely, has gone a step ahead. In a recent press release, it announced that every car launched by Volvo from 2019 will have an electric motor – both fully electric cars and hybrid cars.
“This is about the customer,” said Håkan Samuelsson, president and chief executive.
“People increasingly demand electrified cars and we want to respond to our customers’ current and future needs. You can now pick and choose whichever electrified Volvo you wish.”
Other than this there are a number of new startups who have jumped into the fray.
Therefore, Tesla will not have it easy. It will have to weather increasing competition from the traditional automakers and startups. Hence, the market will watch the performance of every electric car – both Tesla’s and its competitors – to justify the premium valuation Tesla enjoys.
Tesla has a very small room for error. Any failure can start a deeper correction in the stock, similar to the one that started on July 3.
Technically, what does Tesla’s chart predict?
Tesla was trading in a range for more than three years. It finally broke out of it in April of this year. From there, the stock had a near vertical rally, rising about 35% within a matter of a few weeks. In doing so, it came very close to its target objective of $396, where it saw a bout of profit booking.
Nevertheless, any breakout of a long consolidation, pulls back and retests the breakout level. Tesla’s stock is currently doing that. It remains bullish as long as it trades above the $280 levels. However, since the fall from the highs of $386.95 has been vicious, it’s better to wait for some kind of a consolidation before entering any fresh long positions.
Tesla is attempting to change the way we drive; however, it is still in early stages of that change and will not turn a decent profit for a few more quarters. Therefore, its valuation will only be decided on its future prospects. The investor has to be up to date with every news related to the stock, because with its current valuation, it cannot afford any misstep. With too many variables attached to the stock, it is better to avoid it as a long-term investment. The investors can look at more stable stocks with a clearer earnings projection for their long-term portfolio.
Will These Stocks Rally Again This Year?
The US markets are on a roll as we head into the last quarter of the year. The S&P 500 continues to record new lifetime highs on a regular basis. While a section of the trading community has been skeptical of the rally, it has not deterred the bulls from buying on every dip. The correction still eludes the bears.
- The markets are at new lifetime highs.
- The fourth quarter is the strongest quarter for the stock market.
- Historically, five stocks of the Dow Jones industrial average have traded positive about 80% of the times in the fourth quarter.
- We analyze the charts of the five stocks to determine whether they offer a good risk to reward trading opportunity this year.
However, the current bull rally, which is already the second longest in history calls for caution but traders should continue to participate because no one can predict the exact top in the markets. It is only in hindsight that one comes to know about the top.
Therefore, in this article, we shall analyze the historical performance of the stock markets and a few stocks in the fourth quarter of the year, which have rewarded the investors handsomely.
Though it is not necessary that history will repeat itself, chances are that it may rhyme. These studies help the trader improve his odds for success.
The Dow Jones industrial average has risen for eight straight quarters, the longest winning streak since 1997. The S&P 500 has also rallied similarly, while the Nasdaq composite has risen for five straight quarters.
Though the September quarter is cyclically one of the weakest, this year, the Dow rallied 4.9%, the S&P 500 4%, and the Nasdaq composite 5.8% respectively. The stock market has entered its strongest quarter with a favorable tailwind.
The fourth quarter is the strongest for the markets
The fourth quarter is the best quarter for the stock markets by a huge margin. In the last 25 years, it has been positive 80% of the times. This is no small achievement. Also, the returns have been impressive.
Therefore, it is appropriate to expect the markets to close the year with strength. That is what most of the analysts also forecast.
Analysts expect 2017 to end on a strong note
In a recent poll by CNBC, majority of the analysts were confident that the S&P 500 will rise from the current levels and end the year with strength.
Along with the rise, they were extremely bullish on the pace of rise. About 79% believed that the rally will be more than 5%, which gives a year-end target of 2635 on the S&P 500. Considering the rally of the past few days, it certainly looks achievable.
But it is not only the US markets that are creating new records. The global stocks have also equaled the record for consecutive monthly gains – 11 straight months, last achieved in 2003, during the rebound from the dotcom bust.
Therefore, historical evidence suggests that we should see a strong fourth quarter, which will be good for stocks.
However, in the current bull run, the rally has not been broad-based. Only a handful of stocks have led the rally. Therefore, in order to profit, one has to pick the right stocks. Just buying any stock in the markets will not guarantee returns.
A study by CNBC has identified five stocks in the Dow Jones industrial average, which have rallied in the fourth quarter majority of the times.
While these are positive numbers over a long period of time, still, before investing, it is always prudent to analyze whether the performance can be repeated this year.
Let’s look at the chart patterns to find out whether the stocks offer a good risk to reward trade opportunity or not.
The stock is currently trading within an ascending channel. It has traded in the upper half of the channel for most of the times, however, in September, it fell to the lower end of the channel. Since then, the stock has again rallied back to the highs. We can expect the stock to continue trending higher until it breaks down of the channel. Therefore, we have a clear stop loss at around $190.
Also, considering the stock’s performance of the past few months, we can expect a rally to the upper end of the channel, which should be around $207. However, for that, the stock will have to first rally above the highs of $200.76. If we buy at the current levels, our immediate profit objective is around $10, whereas, the possibility of a loss is $8, which leaves us with a risk to reward ratio of 1:1. Traders can take 50% position at the current levels and add the remaining 50% once the stock breaks out of $201. The initial stop loss should be kept at $190, which should be trailed higher once the stock moves up.
The stock has broken out of an inverse head and shoulders pattern, which has a pattern target of $176. However, most breakouts retest their neckline, which in this case would be the $162.5 levels. Therefore, traders can buy 50% of the position at the current levels and 50% on a retrace to $162.5.
The stop loss should be kept at $159 levels, just below the neckline because the pattern weakens when the stock starts to trade below $162. This gives us a risk to reward ratio of roughly 1:2.
The stock has formed a large base after falling from the peak made during the dotcom bubble. A breakout of the overhead resistance zone of $33 to $35 can be very bullish for the stock, as it has no major resistances ahead. Therefore, we can assume that the stock will gain momentum once it sustains above $35.
On the daily chart, we find that the stock has a stiff resistance at $34.5, where the stock is likely to stall its current rally. However, if the stock breaks out of the resistance, it will be very positive for it. Therefore, traders should wait for a close above $34.5 and enter at $35. The stop loss for the trade can be kept at about $32.5 levels. The rally can easily extend to $39 and higher, which gives it a risk to reward ratio of about 1:2.
DIS is range bound between $90 and $120. Currently, it is trending down, as price is quoting below the downtrend line and the 50-day simple moving average (SMA). Any rally from the present levels is likely to face a slew of resistances between $101 to $106, from the 50-day SMA and the downtrend line. Therefore, we don’t find a buy setup here that can be traded.
The stock has been in a well-established uptrend, trading inside the ascending channel since 2010. However, at the current levels, the stock is right in the middle of the channel. Its support is at $110, whereas, it has resistance at $130 and thereafter at $140. The stock has not reached the upper end of the channel since November 2015. Therefore, the chances of a rally to the upper end of the channel in the fourth quarter look dim. At the present levels, we don’t find a good trade setup, which offers an attractive risk to reward ratio.
After analyzing the charts of the five stocks, we find buy setups only on three stocks. We don’t find any reliable buy setups on the other two.
Though the fourth quarter is the strongest, October gives jitters to the history students of the stock markets because two major crashes started in this month. First was the crash on 29 October 1929, commonly known as ‘Black Tuesday’ and the second was the crash on 19 October 1987, also known as ‘Black Monday’.
Though we don’t expect a similar crash this year, there is no running away from the fact that the markets are trading above their average price to earnings ratio. Additionally, the geopolitical tensions and the news on the tax reforms will keep the markets on the edge. Therefore, traders should be cautious and reduce their position size. Participate in the markets but with a lower allocation and keep a generous amount of cash in the portfolio.
These stocks can offer more than 50% returns in a year
Usually, the stocks are beaten down for a specific reason. Therefore, it is not a good strategy to buy the stocks when they are falling. However, at times, fear takes over, sinking the stocks to mouth-watering levels, from where the downside risk is limited but the upside opportunity is huge. So, without further ado, let’s look at the two beaten-down stocks that offer a good upside potential.
- Och-Ziff Capital Management stock price has plunged following its bribery scandal
- Its assets under management has fallen about 33%
- However, things look to be turning around as AUM increased marginally in August
- Rite Aid has sold 1932 stores to Walgreens Boots Alliance for $4.375 billion
- The remaining stores and business of Rite Aid are valued much higher than its current market cap
- It is a good takeover candidate
Och-Ziff Capital Management (NYSE: OZM)
OZM is a multi-style hedge fund, which has mostly outperformed its peers over the past decade.
Due to its outperformance, its assets under management (AUM) increased from $22.6 billion in 2006 to $47.5 billion in 2014. Between 2009 and 2014, its AUM doubled. However, since then, we find a consistent drop in its AUM. But why?
The firm was charged with bribing officials in various African nations, including the Libyan Gaddafi regime. As a result, after a two-year investigation by the Securities and Exchange Commission and the Department of Justice, the African subsidiary of the firm, OZ Africa, pleaded guilty and a settlement was reached, where OZM agreed to pay a fine of $413 million.
This led to a series of withdrawals by various pension funds, foundations, and endowments. As a result, the AUM of the company fell by about 33% from July 2015 to May 2017.
The hedge fund’s main sources of revenue are management fees and incentive fees. The management fees increases as the AUM increases, while the incentive fees depends on the fund’s performance.
Therefore, if we believe that OZM will turnaround, it will have to generate better returns than its peers to attract new capital, which will increase its AUM. If the hedge fund is successful in doing this, it will earn more revenues and therefore signal a turnaround, which will reflect in its prices.
Withdrawals have abated
The company reported that its AUM increased to $32.3 billion as of 01 September 2017, an increase of approximately $0.3 billion since 01 August 2017. This shows that the hedge fund has been able to attract some capital, though small and is retaining its existing investors. Considering its strong history of outperformance, we believe that it will be able to attract new investors and increase its AUM
OZM’s latest performance of its three funds is given below.
Now, let’s see how this scandal has affected the price of the OZM.
The stock is down about 80% from its 2014 highs. This shows that the investors have severely punished the stock due to the scandal. However, since touching a low of $2.15 in April of this year, the stock has started a base formation. Though the stock is unlikely to rally back to $14 to $16 levels in a hurry, it can easily start a recovery, which can carry the stock to about $4.78 levels within a year, which is a 48% rise from Friday’s levels.
The stock has formed a cup and handle formation, which will complete on a breakout above $3.22. This pattern has a minimum target objective of $4.3. However, once the stock breaks out of $3.8, it doesn’t have any major resistance until $4.8. Therefore, we recommend buying the stock at $3.25 with a stop loss of $2.6.
The investor sentiment can sour due to geopolitical reasons or due to the failed tax reforms in the US. A risk-off trade will reduce the possibility of increasing OZM’s AUM. OZM can underperform its peers, which will make it difficult to attract new investors.
Rite Aid Corporation (NYSE: RAD)
RAD is a pharmacy chain, which recently sold 1932 stores, including three distribution centers, and related inventory to Walgreens Boots Alliance (NASDAQ: WBA) for $4.375 billion on a cash-free, debt-free basis.
Even after the sale, RAD is left with nearly 2600 stores along with six distribution centers, pharmacy benefit manager Envision Rx, RediClinic, and Health Dialog.
After valuing the remaining business of RAD, we find that the stock price offers a good risk to reward ratio.
Our investment thesis
In its latest Conference Call, Darren W. Karst, SVP, CAO, and CFO of RAD said: “Over 70% of the stores we are retaining at our wellness or customer world locations and per store sales and adjusted EBITDA at these stores is higher than the current chain average”.
This shows that RAD has not been left with unprofitable stores.
On calculation, we find that Walgreens has paid about $2.26 million for each store of RAD. Therefore, if we assume the same valuation for the remaining 2600 stores, we arrive at a figure of $5.87 billion.
Another major business that Rite Aid holds is the pharmacy benefit manager (PBM) Envision RX. RAD had paid about $2billion while acquiring the firm back in 2015. Though the jury is out whether RAD had overpaid for the acquisition, we shall consider the existing market metrics to value it.
Envision Rx generates an income of about $6 billion. If we consider a pure play PBM, Express Scripts, the market values it at about 0.4 times of sales. Even if we take a conservative estimate of 0.3 times sales, we arrive at a valuation of about $1.8 billion for Envision Rx.
Adding the two, we arrive at an asset valuation of $7.67 billion.
The company has a total gross debt of $7.20 billion. Let’s assume that the company uses about $4 billion of the total cash received from the sales of its stores to pay down the debt. That leaves a total liability of $3.2 billion.
By deducting the total liability from the asset valuation, we arrive at a figure of $4.47 billion. The total outstanding shares of the company is $1.05 billion. Therefore, even if we take a conservative estimate, RAD’s shares should be valued at $4.25. That is a good 116% higher than the closing price of $1.96 on September 29.
A good takeover candidate
There are rumors that Amazon is exploring options to enter the pharmacy business. If it does, RAD can be a good fit for it to kickstart its operations. Even otherwise, RAD’s valuation is likely to attract the private equity players or other suitors.
Though the management has not been able to put up a credible performance in the past many quarters, with a fresh cash infusion, they have numerous opportunities to turnaround the company.
What do the charts forecast?
The weekly chart shows that the stock has been a huge underperformer. Every once in a few years, it rallies close to $8 levels and then gives back its gains. The long-term chart doesn’t show any trend in the stock. Let’s see if we can get any clue from the daily charts?
The stock has fallen from above $8.5 levels in January of this year to below $2 levels. The stock is in a strong downtrend and it continues to make new 52-week lows. We don’t want to catch a falling knife. Therefore, we shall wait for the price to stop making new lows for three days and then buy about 50% of our total allocation. Remaining 50% position can be added once the stock sustains above $2.2 levels. The stock should gain strength once it breaks out of $2.8. A move to $4 is likely within a year. We can keep a stop loss of $1.
RAD, with its reduced size, will find it difficult to compete with the larger players. The management doesn’t utilize the cash received from Walgreens effectively. Amazon or any other player doesn’t show an interest in buying out RAD, which will deliver a further blow to the sentiment. RAD can continue to dig itself into bankruptcy.
September Penny Stocks To Watch
Strong biotech activity drove penny stocks in August, lifting many to 2017 highs, according to Investopedia. Other low-priced stocks underperformed, held back by political dysfunction and late summer illiquidity that sidelined investment activity.
Half of August’s penny stock picks returned in September, all to higher spots on the list. RADA Electronic Industries, Ltd. led the pack, gaining more than 40% for a two-year high. 22nd Century Group Inc. jumped 23% during the period, while Trilogy Metals Inc. racked up and additional 17%.
Large scale catalysts could drive fresh speculation. The iShares Nasdaq Biotechnology ETF, for instance, began the last week of August in a strong position shortly after Gilead Sciences Inc. announced its acquisition of Kite Pharma, Inc. Such events impact low-price issues that are easier for small traders to purchase and hold versus large pharma manufacturers.
1. RADA Electronic Industries, Ltd. (RADA)
RADA Electronic Industries, Ltd. (RADA), a defense electronics system of advanced electronic systems for airborne and land applications, moved from the number two spot in August to number one in September.
The stock fell into a multi-decade decline after it joined Nasdaq in the 1990s. It ground out a series of lower highs and lows through January 2016’s all-time 54-cent low.
The stock spent 16 months moving sideways in a narrow basing pattern before turning higher in May 2017 and rallying back to 2016 resistance at $1.78.
The stock cleared major resistance at $2.25 in July 2017, entering an uptrend that’s now filling the July 2015 gap between $2.50 and $3.60. Buying pressure remains strong, raising odds it will test 2015 resistance near $4.00.
Following capital raising activity with institutional investors, the company converted loans to equity and increased its net cash position by $13.3 million while reducing ongoing annual interest payments by approximately $250,000.
On Aug. 21, RADA completed a $10 million capital raise under an existing shelf prospectus, issuing 4,604,500 shares. The investors included leading Israeli institutional investors, such as Yelin-Lapidot Investment House, More Investment House, Noked Capital, and The Phoenix Insurance Company.
From Aug. 17 until Sept. 5, DBSI, the company’s primary shareholder, exercised warrants and converted a loan to equity. It sold a portion of the shares gained to institutional investors such as Optimus Fund and others. On a net basis over the period, DBSI increased its shareholding in RADA by 1,168,782 shares to approximately 12.2 million shares, representing 35% of the company’s equity on a fully diluted basis.
2. 22nd Century Group, Inc. (XXII)
22nd Century Group, Inc. (XXII), a biotechnology company that provides tobacco harm reduction and development of proprietary hemp/cannabis strains, rose from the number three spot in August to number two in September.
The stock broke out above multi-year resistance near $1.50 in 2013, rallying to a record high a few months later at $6.36. It then began a persistent decline through August 2015 before finding support at 56 cents, followed by a bounce to $1.75.
The stock traded within these boundaries for 22 months, bouncing at support three times and reversing at resistance in equal measure. The price returned to that level a fourth time, improving odds for a breakout that could double the price in the year’s second half.
22nd Century Group found support near 70 cents in the second half of the year, testing that level three times ahead of a March 2017 uptick that has now reached range resistance. A breakout over $2.00 should draw strong buying interest favoring a high percentage rally back to its three-year high.
The stock hit its highest high since 2014 on Aug. 7, 2017, and pulled back to the 20-day SMA, testing support around $2.00. This price level could offer a platform for continued upside that reaches longer-term resistance near $4.00.
The stock joined the Russell Microcap Index three months ago when FTSE Russell reconstituted its U.S. and global equity indexes.
Membership in the Russell Microcap Index signifies automatic inclusion in the value style indexes. FTSE Russell determines membership for its Russell indexes primarily by objective, market-capitalization rankings and style attributes.
22nd Century Group focuses on genetic engineering and plant breeding that allows the increase or decrease of nicotine levels in tobacco plants and cannabinoids levels in cannabis plants. Its primary goal for tobacco is to lessen the harm caused by smoking. The primary goal for cannabis is to develop proprietary hemp/cannabis strains for new medicines and agricultural crops.
3. Trilogy Metals, Inc. (TMQ)
Trilogy Metals Inc., an exploration stage company which engages in the development and exploration of mineral properties, joined the list at number five in August and moved to the number three spot in September.
The Vancouver, Canada-based company went public on the U.S. exchanges in April 2012 at $3.20, beginning an immediate downtrend to an all-time low at 15 cents in January 2016. A recovery wave mounted the 200-day EMA at 60 cents that stalled three months later, yielding a narrow basing pattern into a July 2017 recovery that reached a two-year high at $1.22.
The rally hit a three-year high at $1.35 on Aug. 7, yielding a pullback that’s testing 50-day EMA support, with a bounce at or above 90 cents, setting the stage for a strong buying impulse.
The company reported a strong working capital position of $20.1 million in the second quarter, with cash on hand of $14.5 million.
For the three months ending May 31, 2017, the company reported a net loss of $2.4 million compared to a net loss of $1.6 million for the corresponding period in 2016. This variance was primarily due to the size of the field programs at the Upper Kobuk Mineral Projects in 2017 as well as the timing of the program. An increase of $840,000 of mineral property expenses occurred during the three months ended May 31, 2017 compared to the three months ended May 31, 2016. In 2017, the field program at Arctic and Bornite began with drilling by early June compared to 2016 where the field program kicked off in early July.
The company announced a financial partnership with South32 Limited for an option to form a 50/50 joint venture for a minimum investment of $150 million. South32 is required to fund a minimum of $10 million per year, for up to three years to keep the option in good standing. The first $10 million has been advanced to the company and will be spent on a 12,000-meter exploration drill program at the Bornite deposit, which is already under way.
4. Intrepid Potash, Inc. (IPI)
Intrepid Potash, Inc., the only U.S. producer of muriate of potash, moved from the number nine spot in August to number four in September.
The company sold off to 2008 support at $13.80 in 2014. Two years later, the stock began a decline that reached an all-time low at 65 cents in March 2016. The stock rose above $1.50 in June before settling in a sideways pattern ahead of a December 2016 breakout that soon stalled at $3.04.
A stair step bounce reached a 21-month high at $3.93 on Aug. 3, giving way to rectangular consolidation with support near $3.15. The stock is now testing range resistance, with a breakout to more upside that could reach the 200-week EMA, now descending from $8.00.
Intrepid generated a second quarter net loss of $5.9 million, or $0.05 per share, delivering a first-half net loss of $19.6 million, or $0.19 per share. This marked an improvement over the net losses of $13.4 million, or $0.18 per share, and $31.8 million or $0.42 per share, in the second quarter and the first half of 2016, respectively.
Improvements in year-over-year net loss per share were driven in part by a gain in outstanding shares from the March 2017 secondary offering.
Consolidated gross margin advanced to $3.7 million and $0.8 million in the second quarter and the first half of 2017, respectively, against the prior year. Improvements were due to lower cost solar potash production and higher average net realized potash pricing that offset lower average net realized sales prices for the product, Trio.
Cash provided by operating activities rose year-over-year to $9.7 million and $11.5 million for the second quarter and the first half of 2017, respectively. Increased cash flow was due to strong spring demand, increased potash prices, and the elimination of costlier conventionally mined potash from the production profile.
5. Tantech Holdings, Ltd. (TANH)
Tantech Holdings, Ltd., a manufacturer of bamboo-based charcoal products for industrial energy applications and household cooking, heating, purification, agricultural and cleaning uses, moved from the number 10 spot in August to the number five spot in September.
The company went public at $6.00 in March 2015 and began an uptrend that topped out at $33.97 five months later. In the next three months, the stock relinquished more than 90% of its value. Bears maintained control into the April 2017 all-time low at $1, followed by a recovery that reached a 10-month high in July.
Pricing has tested resistance at the September 2016 breakdown through the October 2015 low, with a buying surge setting the stage for upside into the $6 range.
The stock hit an all-time low at $1.00 in April 2017. Bullish action since that time has reached 2016 resistance, with a breakout raising odds for a rally into the 2016 high at $6.00.
6. Cancer Genetics, Inc. (CGIX)
Cancer Genetics, Inc. (CGIX), a provider of personalized medicine, offers diagnostic products and services that enable precision medicine in the field of oncology.
The stock topped out at $23.25 in 2013 and ground sideways into a 2014 breakdown that accelerated into the second half of 2016. The stock dropped to an all-time low at $1.10, then turned higher in 2017, lifting above the 200-day EMA and reaching a 17-month high at $5.30 in March.
Price action since March has carved a long series of lower highs, generating a trendline with resistance at $3.90. A rally above the 2017 high would set the stage for rapid gains that could eventually reach double digits.
The company reported second quarter revenue of $6.6 million, with record biopharma demand with $7.1 million in new contract bookings for its biopharma services.
Clinical services revenue was up 20% in the quarter to $3 million over the same quarter in 2016. The company reduced its second quarter loss from operations by 22% compared to 2016.
The company is now supporting more than 170 clinical trials serving nine of the top 10 biopharma companies in the world.
7. Moleculin Biotech, Inc. (MBRX)
Moleculin Biotech, Inc. (MBRX) went public in June 2016 at $8.99 and began a downtrend that continued to post new lows into May 2017 before it bottomed out at 71 cents. A June test held support ahead of an uptrend that completed a high volume base breakout which saw the stock rally to an 8-month high at $3.75 by the month’s end.
A pullback in July found support at the 50-day EMA, causing a bounce to range resistance, followed by a decline that could attract strong buying and continued upside toward $6.00.
The company recorded a net loss of $3.3 million in the second quarter of 2017 for the change in fair value on revaluation of its warrant liability associated with warrants issued in conjunction with its stock offering in February 2017.
The company recorded a gain in the second quarter of 2017 of $1.2 million related to the expiration of warrants issued as part of the February 2017 stock offering.
The net loss for the three months ended June 30, 2017 was $2.3 million, including non-cash income of $1.2 million related to a gain recognized on the expiration of warrants, which was offset by a non-cash expense of approximately $3.3 million on the change in fair value of the company’s warrant liability. The net loss also included additional noncash charges for $0.1 million for stock-based compensation and other stock-based expenses.
As of June 30, 2017, the company had $9.3 million in cash and cash equivalents compared to $5.0 million at Dec. 31, 2016. Through June 30, 2017, $3.2 million in cash was received from the exercise of warrants issued in the February public offering. Cash used in operations was $3.4 million for the period ending June 30, 2017.
8. Vivint Solar, Inc. (VSLR)
Vivint Solar, Inc. (VSLR), which provides homeowners with simple and affordable clean energy, opened for trading in October 2014 at $17.01, ahead of a severe downtrend that bottomed out near $7.50 in December 2014. Lower lows in the second quarter of 2016 gave way to a basing pattern, followed by a June 2017 breakout that’s now testing 50-day EMA support. A bounce at this level could gain traction, testing the 2017 high ahead of additional gains into the $7.75 to $8.00 resistance zone.
Operating leases and incentives revenue was $43.4 million for the second quarter, up 45% from $30 million in the second quarter of the prior year. Total revenue for the quarter was $73 million, up 109% from $34.9 million in the same quarter of the prior year.
Cost of operating leases and incentives was $33.8 million for the quarter, down from $38.5 million in the same period of 2016.
Total operating expenses, including the cost of revenue, were $87.3 million, compared to $71.4 million in the same quarter of 2016.
Loss from operations was $14.3 million compared to $36.5 million in the same period of 2016.
As of June 30, 2017, Vivant Solar had $15 million in undrawn capacity in the working capital facility, and $308 million in undrawn capacity in the aggregation facility. The company also had approximately 109 MWs of installation capacity remaining in its tax equity funds.
9. China Information Technology Inc. (CNIT)
China Information Technology Inc. (CNIT), a provider of Internet-based ad distribution and ad display terminal sharing systems in China, topped out at $16 in 2009 and broke down two years later, beginning a decline that continued into the 2012 low at 71 cents. A three-year bounce ended in a triple top reversal near $7.00 that gave way to November 2015 and March 2017 tests at the deep low.
Support held after a final washout, resulting in a two-legged recovery that has reached a 52-week high. Buying volume indicates the current pullback to 98 cents will mark an opportunity ahead of a rally that could reach the 200-week EMA over $2.00.
The company recently entered into a contract for the sale of 3,000 CNIT cloud-based ad terminals to be installed in office buildings, residential communities, shopping malls and outdoor locations throughout Tianjin Municipality, the primary industrial, commercial and economic center of North China.
The company has projected 2018 revenue of $30 million to $33 million and adjusted net income of $9 million to $11 million, with sales of 120,000 cloud-based ad terminals in 100 cities covering 200 million people throughout China.
10. Zynga, Inc. (ZNGA)
Zynga, Inc., a company whose mission is to connect the world with games, became public in December of 2011. The FarmVille creator reached an all-time high at $15.91 in March 2012, then dropped in a straight line to $2.09 in November, ahead of a bounce that stalled near $6.00 in 2014.
The stock found support at the 2012 low in the first quarter of 2016, then turned higher, rallying to a three-year high in June 2017. Price action since then made a symmetrical triangle on top of the 200-week EMA.
The company achieved record mobile revenue and bookings in the second quarter, with revenue up 30% year-over-year and bookings up 33% year-over-year.
Mobile now represents 86% and 87% of total revenue and total bookings, respectively. Mobile online game revenue was up 39% year-over-year, and mobile user pay bookings were up 45% year-over-year. The company’s mobile audience reached 19 million average daily active users, up 28% year-over-year and the strongest since Q4 2014.
GAAP operating expenses for the quarter were 67% of revenue – down from 73% of revenue for the same period in Q2 2016, while non-GAAP operating expenses were 58% of bookings – down from 68% of bookings a year ago.
The company delivered its first quarter of GAAP pre-tax profit since Q4 2012, due in part to progress in improving operating leverage and the lowest quarter of stock-based compensation expense in more than three years.
The company generated operating cash flow of $37.8 million, which was its best quarterly performance in five years.
Penny stocks require investors to make some guesses about the future. Very few such stocks have a sufficient track record to indicate they will prosper. At the same time, the stocks on this list are in significant industries and have the potential to be vital players in their respective industries.
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