Cognex (CGNX) Trade Review 2017:
Welcome to today’s Cognex (NASDAQ:CGNX) trade review!
But in case you missed it…
Last week I wrote a trade review of Shopify. And because of all the great feedback I received on that article, I wanted to share another recent trade with you!
But first… I want to be clear…
By no means am I trying to brag about these past trades! Instead, my goal with these trend following trading reviews is to help show you the thinking behind why I bought the stock, as well as how I managed the trade from start to finish.
I share free trade ideas on my website each weekend, which you are always welcome to browse.
… Plus, you can opt-in to get notified whenever I publish new ones…
BUT in the world of stock trading and investing, the picks and entry signals seem to get ALL the attention.
Yet in my experience…
It’s what you do AFTER you push the buy button that makes the biggest difference!
So in these trade reviews, I want you to see not only why I bought this breakout stock pick..
I also want you to get a clear feel for how I manage the trade once the shares are in my brokerage account.
And by showing you my process from start to finish, maybe you’ll learn something new about trend following trading.
While today’s CGNX trade turned out to be a winner, I promise to cover some losing trades in future reviews.
“After all, a big part of successful stock trading is keeping losses small!”
Finally, these trade reviews are also a good debrief for me.
While I track all my trades in a spreadsheet/journal, this longer form review is a GREAT exercise to help me model what’s working, and learn from the mistakes.
You might even want to try it yourself!
I hope that gives you an idea of why these trade reviews can be valuable, and maybe even help you improve your own edge in the markets.
So with that in mind, let’s look into:
- Why Cognex presented a good trend following opportunity,
- How this CGNX trade could have been even better; and,
- The reason I chose to close the trade.
Sound good? Great!
Then let’s get into it…
What is Cognex (CGNX)?
Cognex is one of those companies you may not have heard of. But that doesn’t mean it’s a company to ignore!
Cognex is an expert in the field of machine vision. What’s that you ask?
Well, I encourage you to browse through their website for more information.
But in short…
Companies can use Cognex products to help them automate and improve their manufacturing processes.
Cognex helps with things like quality control, assembly line monitoring and reducing manufacturing mistakes. By automating these important services, Cognex strives to provide a strong value proposition for customers.
Headquartered near Boston, Cognex has offices in Europe and Asia to help serve customers around the globe.
So now that you’re a little more familiar with this unique technology company, let me tell you about the thinking behind this recent trade.
Why Did I Buy Cognex?
Shares of CGNX came up on my radar for one simple reason: the stock was breaking out to 52-week highs!
To be honest though…
“New 52-week highs are the reason that most stocks jump out at me!”
And I know it might sound too simple.
But the fact is…
If people are bidding a stock to new highs, there is probably a reason for it!
Plus… in a bull market at least… there’s often a good chance these momentum stock can keep running higher. I find this is especially true if it’s in blue sky territory, (as was the case with CGNX.)
Going a step further…
When I took a look at some of the historical fundamental trends… well… I was impressed!
You can see from the Morningstar key stats the company has…
- Impressive track record of top line growth,
- Steady increase in earnings per share and book value per share,
- Consistent gross margins, which may indicate strong pricing power.
Taken together, these fundamental results give me some confidence CGNX is firing on all cylinders.
Plus, while a strong track record of historical results doesn’t guarantee future success, I think it tilts the odds in my favour.
Over the longer term, stock prices tend to follow fundamental results. So I was somewhat optimistic the trends in the operating business can help give the trend in CGNX more room to run. Make sense?
Now just to give you a bit more perspective…
Here’s a chart of what CGNX looked like when I first bought the stock back in October 2016 around $54.50.
At that point I was still getting up and running with the blog reviews. But I eventually covered CGNX at the start of this year when shares were around $66
Of course, you can see that CGNX shares had already risen quite a bit by that time. But that didn’t stop me from pulling the trigger.
And that’s where things really get interesting.
How Did I Manage the Cognex Trade?
The great thing about trend following trading is that it’s pretty simple to manage your trades.
I don’t use profit targets, and I don’t try to predict.
I simply create a plan for when to sell my shares, and then I wait and see.
Because while it can be fun to cheerlead every new high… and tempting to freak out at every pullback… experience has taught me it’s often more profitable to take a step back and just let things flow.
“And CGNX is a pretty good example of this!”
As you can see…
My initial entry turned out to be well-timed, and the stock just trended higher.
So I trailed my stop-loss along the way. And eventually…
Once my stop had moved into the green, I decided to add more shares to the burgeoning CGNX position in my portfolio.
To be totally honest…
I would have probably been wiser to buy more shares a little earlier. But I’m only human!
Since I was fully invested while Cognex trended higher, it wasn’t until shares of CGNX hit $79 that I had enough cash to make another purchase worthwhile.
That said, I did blog about CGNX multiple times along the way (here)..
And here’s what it looked like when I sized up my position in CGNX:
As you probably know, it can often be quite uncomfortable to re-buy stocks that have gone higher.
It’s scary to think you might give back all your gains. And there’s a temptation to lock-in a sure thing rather than increase risk with another slug of shares.
But as I said before…
“New highs often lead to new highs!”
And with that in mind, I swallowed my doubt, admitted I might be late and pushed the buy button, again.
So what happened next?
When and Why Did I Sell Cognex?
It’s actually pretty simple!
In fact… you’ve probably heard that old trading expression…
“The trend is your friend, until it bends in the end!”
Well, that’s EXACTLY what happened to me with CGNX. Because…
After a few strong quarters of trending stock price, shares of Cognex started to run into some turbulence.
And let me just say…
While volatility in and of itself isn’t a bad thing, it can be a clue that a trend change is coming (or at least you might be in for a pause).
It’s almost like the personality of the stock changes.
… It goes from well-behaved… to unrestrained!
And in the case of CGNX, that’s just how it’s played out!
Here’s the daily chart to give you a better view, where I was stopped out just above $85.50
The reason I mention this is because it can help you prepare to close the trade and take your profits.
This could be especially helpful for those of you who are uncomfortable taking a loss.
… This choppy action isn’t what you signed up for, right? So stick to you plan and move on to the next one.
By the way…
I also made a video focusing on this aspect of the trade review. You can check it out here:
CGNX Video Trade Review:
What’s Next For My Cognex Trading Plan?
Well, at this point it looks like shares of CGNX have paused a bit. But… you should know… even though I sold my shares of CGNX, it’s still on my radar!
The longer-term fundamental results for Cognex have been quite impressive. So it’s entirely possible this stock could breakout again.
I’ve set an alert for my broker to notify me if CGNX hits a new high.
This way, if the stock firms up and starts acting right, I can happily re-buy a new position.
But on the other hand, I don’t have to keep watching the chart and agonizing over if I made the right choice. Markets are hard enough as is – no need to torture myself with what ifs.
So where does that leave us?
Conclusion and Lessons Learned From this Cognex Trade Review:
Overall, this Cognex trade idea worked out well for me. And it’s a pretty good example of trend following success!
One key thing that stands out to me is how adding to profitable positions can be emotionally difficult… yet… it’s often profitable!
For me, having a clear rules-based approach to managing my portfolio positions makes this easier (as I’m more focused on system performance and not the results of one individual trade).
This is especially true for pyramiding into position and cutting losses quickly.
Now ideally… in the case of CGNX… I would have added to my position earlier.
Instead, I got stopped out shortly after adding the second leg of the trade.
But that’s always easy to say in retrospect.
For now, I’m content to count this trade as a win. I’ll also consider getting back in
I hope you found this Cognex trade review helpful!
And by the way…
If you want to get notified of new ideas like this each week as they happen, just drop your email address in the form below!