When it comes to stock picking, especially for the small and micro cap space, there always should be a nice combination of technical setups and fundamentally changing headlines in order to set yourself up for success. While that’s hard to find on the daily, sometimes it works out that you find multiple potential picks in the same day. That’s what happened for today’s pick. After sifting through our watchlists and screeners, we came up with a few that caught our eye, but we eventually dwindled the short list down to a single pick; Borqs Technologies Inc. (Nasdaq:BRQS).
Initially this pick rose to the top due to its technical setup as the price recently bounced off of a multi-year support level earlier this week. Not only that, but the strong performance on Thursday set up for a potential bullish breakout of a long-term pattern that has been corralling the price spikes for quite some time. Should this momentum continue, we could see a massive shift of sentiment for this small cap.
It wasn’t only the technical side that intrigued us, but the company also put out a press release that certainly captured the attention of traders. On Thursday, it was announced the company through a joint venture is receiving bids from several real estate developers to build out a 1.9 million sq. ft., $110 million 5G industrial park in Huzhou, China. The release went on to say that this astonishing valuation includes the company’s 1.7 million sq. ft. of land-use rights granted Borqs by the Huzhou South Taihu New Area government. Certainly a strong headline for a company that has a market cap of around $106 million. Before we dig into the trading strategy, first we think it’s important to have some background on the company itself.
Background:
Borqs Technologies Inc. operates as a software development company. It is engaged in software, development services, and products providing customizable, differentiated, and scalable Android-based smart connected devices and cloud service solutions. The company's segments include Yuantel and Connected Solution. Borqs derives most of its revenues from its Connected Solution which includes Software and Hardware. Its geographical segments include China, India, the United States, and the Rest of the World, of which the majority of the revenue comes from India.
BRQS Trading Strategy:
With the continued momentum since hitting support earlier this week, we like the entry on Friday’s open to not miss out on this continuation. From a resistance standpoint, there are two main levels that we believe are key points for potential consolidation. UP first is the June peak of $1.60. Following this is the March peak of $1.93. While there are smaller, less significant levels of potential resistance between the current price and our price target, we feel that these two are the strongest. With this in mind, we have set our price target at $2.00.
Support for this stock is a bit different than the usual picks we do. This is because there are normally a long list of levels and zones to choose from, but seeing that this stock recently made a new 52-week low, there are very few options. That being said, we had to dig a little deeper and found that the recently made yearly low was in line with a multi-year support zone spanning between $0.78 - $0.81. While this isn’t one specific point, we can assume that the true level of support to watch would be the 52-week low of $0.7806. In order to allow this to fully play out, we decided to give this stock some breathing room and set our stop loss at $0.75.
With these risk parameters in place and using Thursday’s close of $0.8731 as the proxy entry price, this play is shaping up to have +129.07% upside while risking -15.24%. We anticipate this move occurring within the next six to eight months.
