Should You Buy Novogen Limited at this Share Price?

Businessman analyzing investment charts at his workplace

What happened to the NRT share price?

Novogen Limited [ASX:NRT] picked up a massive 13.11% today. The stock jumped to $0.345 a share in early afternoon trading. Of course, the whole market did great as well. The Aussie market picked up one third of a per cent by this afternoon. Prices of oil and iron ore dipped over night, this meant the commodity producers were the only losers in the market.
To say that ‘markets tend to overshoot’ is an understatement. For the wise investors out there, the biggest swings present the biggest opportunities. The Aussie market obviously overshot downwards in the last two sessions, and is now correcting upward.
Why wouldn’t the market gain? We have weak data coming out of the Australian economy and we have a central bank that is in a loosening cycle. These are great for stocks in the short run!

Why did this happen to NRT shares?

In the last three months, Novogen produced a rally that ‘shot through the roof’. The stock picked up more than 200% in mid April, before settling back a little. The last few days saw the stock regaining some amazing momentum. Investors are once again becoming very ‘warm’ to this volatile stock.
The company has just released that its TRXE-009 combination kills resistant paediatric brain cancer cells. That in itself is a big step forward for the company’s product development. It naturally inspired a strong rally.

What now for NRT?

Although the company has been a massive gainer lately, it actually is a rollercoaster ride for most long term investors. Its share price peaked in late 2003 and has been declining ever since.
Being an unpopular stock for buyers is not necessarily a bad thing. It happened to be a great stock to short for a long time. For long/short investors, it has been a profitable stock. There is only one catch — it can make very large unexpected moves.
This is a common trait among biotechnology companies. One day they are doing good, the stock would rally, and it would tank the next day when their research don’t go so well. Even with very active management of positions, investors and traders should consider this stock a risky bet.
It should absolutely be underweighted in a portfolio. Not because it is a bad trade in the long run, but because it disproportionately increases the overall risk of a portfolio. This means it punishes the risk metrics of a portfolio.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.

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