Trade Review Of The Day: Were You Long Neogen?

When buying a stock during a large pullback, sometimes the question needs to be asked, "is this a pull-back, or an emerging down-trend?"

Tuesday's trade review looks to capitalize on a stock that has gone through one of these larger pull-backs not-yet-a-down-trend, and could be on the verge of a big turnaround - Neogen NEOG.

Neogen was having a phenomenal 2013 campaign up until the very end of the year, when a Q2 earnings announcement on December 19 spurred some major selling in front of the new year. The company missed on EPS estimates ($0.17 vs. $0.21), but did manage to beat Revenue estimates ($59.6M vs. $58.1M), so the announcement wasn't all bad.

Traders sold off Neogen a bit more into first week of the new year following a minor bounce. After a month of tumultuous price action, Neogen has finally found some footing just above $43. The stock has tested and held recent support on a closing basis six different times over the previous ten sessions.

While trying to "catch a falling knife" is never advisable, buying stocks following significant pull-backs can be a good strategy as long as the stock has displayed some sort of technical indication that the decline is over. In this case, Neogen looks to be forming a base at $43 after a significant pull-back from December highs around $50.90.

The recent move to the downside looks like a poorly-timed earnings announcement during a pull-back already in progress, rather than a significant decline or long-term trend reversal. Buyers are already stepping in in the new year, which creates a low-risk trading opportunity for this Health Care Supplies stock.

As long as $43 holds, Neogen looks like a good candidate to get back some of what it lost on its recent run down. We don't need to play for a full re-trace, but a move back up to $46 seems very plausible if support can hold here. Setting a price target just below this round number at $45.70 would net a gain of 5.78 percent from current prices, while the downside risk to a close below $43.01 is only 0.44 percent, making the reward to risk ratio of this trade over 13 : 1. This is an extremely favorable ratio, but the reality here is that the stock is operating within striking distance of the stop, so there is little room for any further downside action.

Health Care has been strong this year, and Neogen looks like it is good for a rebound after a series of unfortunate events knocked it down in late December.

When to Consider Entering the Trade:

At the current price (~$43.20).

When to Consider Exiting the Trade:
At a close below $43.01 (Breakdown) / An intraday price of $45.70 or above (Profit-Taking)

Disclosure: At the time of publication the editor and affiliated companies own the following positions: None

Note: Positions may be bought or sold while this publication is in circulation without notice.

Neogen Corp - Last 30 Days

Neogen Corp - Last 3 Months

Neogen Corp - Last 6 Months