As the broader markets continued their rebound Thursday for the second consecutive day after the sharp selloff on Monday, the list of stocks meeting our criteria has finally become robust again. During times of market turmoil, the pickings are typically slim when compared to strong bull runs, so with this continuation of Wednesday’s rebound after support was found, the list has grown rather substantially for stock picks. Without further ado, we’d like to introduce our newest pick; Gensource Potash Corporation (TSX-Venture:GSP).
Background:
Gensource Potash Corp is a Canada based company focused on developing resource opportunities with a specific focus on potash development. The company owns an interest in the Vanguard area project located in Saskatchewan and the Lazlo project, among others.
GSP Trading Strategy:
Coming off of an extremely successful session on Thursday as shares closed up at $0.315/share (+8.62%), we like the entry at Friday’s open. This strong move came on the news that the company had secured a rather large amount from a senior debt facility for
its Tugaske project to the tune of $C 280 million. The Thursday release went on to mention that the large sum was generated by two debt arrangers, KfW IPEX-Bank and Societe Generale.
Following the breakout of the multi-month trading range (shown in blue) on high volume, the resistance piece of this play is basically missing due to the fact that the stock hasn’t traded this high since 2008. With that said, there will likely be some mental resistance found using much older data from nearly two decades ago, so take these figures with a grain of salt as much has changed with the company and the market since then. Up first we have the March 2004 peak of $0.41. Following this up is the September 2007 level of $0.54 that served as key resistance before the stock sold off pretty substantially. Though we could see some consolidation here just from individuals using the same logic we did in finding resistance, because of the recent momentum and growth trajectory of the company, we think price will eventually pass right by these levels. While we would love to sit here and say we’ll be at new all-time highs (surpassing the current $.74 mark), we would like to remain a tad more realistic given our typical investment time horizon. With that said, we have set our price target at $0.60/share.
Due to the previously mentioned breakout from the trading range, support is rather plentiful in the near term. Up first we have the September low of $0.26. This trough was actually hit twice this month, so it has proven itself already. Following this is actually a combination of the three major SMAs trailing behind current levels. We have the 50-day, 100-day, and 200-day SMAs currently at $0.245, $0.236, and $0.224, respectively. Should the price drop below these key indicators, we believe it could lead to a rather chunky selloff, so we have set our stop loss at $0.22/share.
With these risk parameters in place and using Thursday’s close of $0.315 as the proxy entry price, this play is shaping up to have + 90.48% upside while risking -30.16%. We anticipate this move occurring within the next eight to ten months.
