Sell Neogen (NEOG)

September 9, 2022

NEOG: $18.72

Total return: -14%

Summary

Shares of Noegen (NEOG) have shown up in my Fidelity and Schwab accounts. As such, I’m closing this recommendation and recommending that you sell your NEOG shares. Unfortunately, this trade recommendation didn’t work out as anticipated (see details below). I will use NEOG’s closing price today to calculate the total return of the recommendation, but including the MMM dividend (payable 9/12/2022), this recommendation has generated a return of -14% (as of Neogen’s mid day price).

Additional Details

Unfortunately, this trade didn’t work out.

Two risks that I had highlighted (MMM is weak during the exchange and NEOG is weak after the exchange has been completed) both came to pass.

The weakness in 3M was driven by a judicial ruling that 3M couldn’t use bankruptcy of its ear plug division to halt lawsuits against the company. As a result, the stock plunged 10%.

The timing of this announcement was unfortunate.

Thoughts on Neogen?

Neogen has been incredibly weak and part of me believes it’s due to investors shorting Neogen shares as part of the exchange offer. Therefore, it could make sense to wait to sell Neogen shares until they have partially recovered as investors cover their shorts.

This could be a prudent strategy. I’m personally planning to sell calls that are slightly out of the money to harvest some income and hopefully exit my position when the stock gets called away from me.

While Neogen does look due for a bounce, I don’t think the stock looks particularly compelling. I discussed this in my original write-up. It’s trading at 16x EBITDA, arguably a cheap relative valuation for a company with secular tailwinds.

But not attractive on an absolute basis.

Disclosure

Rich Howe, owner of Stock Spin-off Investing (“SSOI”), owns NEOG/MMM shares but plans to sell them over time. All expressions of opinion are subject to change without notice. This article is provided for informational purposes.We do not warrant the completeness or accuracy of this content. Please do your own due diligence and consult with an investment adviser before buying or selling any stock mentioned on www.stockspinoffinvesting.com.