Allergan Case Study: Take Profits After Getting Lucky in a Stock

By Brandon Perry Apr 22, 2014 2:04 pm

After my 23% gain in Allergan, I've decided to sell shares.

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I had no idea that a buyout offer was coming for Allergan (NYSE:AGN). What I did see was a stock acting funny in the midst of a sector sell-off. This was the clue that tipped my hand to hitting the buy button on Allergan last week [subscription required].

To summarize, I wrote:

This is a nice health care stock that has the momentum characteristics that I like. It held much higher while the sky was falling for much of its space. It rocketed to new all-time highs today and isn't overbought. From the fundamental side, it is making money, increasing free cash flow. The stock is cheap on a relative basis to its peers, and it has low debt and a decent pipeline.

Now, three trading days later, I sit with a decision to make. Do I take an approximately 23% gain today or hold out for the counter offer?

It is tempting to be the hero and try for the "Top Tick Trophy," however that is neither my mode nor my style.

I am content with a three-day, 23% gain, so I am selling my shares of Allergan. When I get an unexpected profit like this, I prefer to reflect on my process.

What I try to do is buy quality companies at technically appropriate times and sometimes it leads me to lucky spots like this. After I sell my shares of Allergan, I will look to redeploy the cash in other areas. I have a nice list of additional opportunities that I will share at a later time.