Sell Chembio (CEMI)
Shares of Chembio (CEMI) have been on the ropes for a few weeks, and over the last two days, they have deteriorated even more. Fundamentally, the company appears stable. It’s between product launches, with several fever assays likely to hit the market over the next year. And with a recent secondary offering complete, it’s well funded. However, that secondary, along with no word on the Zika assay approval in the U.S., has severely dented investor enthusiasm. The stock cracked its 200-day moving average yesterday, and rather than recovering today, it has cracked the next level of support at around the 5.50 level.
At this point, shares are ridiculously oversold, and that fact alone could easily draw buyers over the coming days. Add in the potential for a resumption of growth heading into 2017, and the stock could be a great buy right now, or at least one to hold onto for a future recovery. On the other hand, selling can go on for longer than expected (as we’ve already seen). And there could be some yet-to-be publicly disclosed negative news that has leaked (I haven’t been able to uncover any rumors). In any event, the chances of a swift recovery to back above 7.00 or so seem increasingly unlikely.
My stop loss discipline is to sell when a stock is 30% down, and the underlying growth story has become cloudy. Today, this describes Chembio. I hate to let it go and eliminate any chance to participate in a potential recovery. But the point of my stop loss policy is to avoid catastrophic losses, which are far harder to recoup than a comparatively modest loss of 30%. Even factoring in Chembio’s lackluster performance, the average gain in our portfolio trumps that of the S&P 600 Small Cap Index, which is outperforming the S&P 500 Index. Maintaining discipline will help to maintain that track record. So unfortunately, it is time to step aside from Chembio (CEMI). I am changing my rating to Sell. SELL
The rest of our portfolio is holding up just fine. With this move, we will have 11 remaining stocks and an average gain of around 21%.