On January 25, 2012, Roche Holdings AG announced that it was going to offer a $44.50 for Illumina (NASDAQ:ILMN) shares. Enthusiasm for the deal propelled the price of ILMN stock as high as $55.15 the same day the offer was announced.
On several occasions we have discussed Illumina (ILMN) as it has shown up on our Nasdaq 100 watch lists. The first time that ILMN was on our watch list was December 19, 2009. At the time, ILMN was trading at $27.88. We watched in awe as the shares of ILMN catapulted as high as $79.40 by July 6, 2011.
Although not at the top of our list, on September 23, 2011 we pointed out that at $41.67 Illumina (ILMN) had lost 47% from the July high. Additionally, we said that "…the possibility exists that all the gains that were made [between 12/19/2009 and 9/23/2011] could disappear in short order." This meant that we believed that ILMN could go all the way back to the price of $27.88. In fact, ILMN fell as low as $25.57 on October 13, 2011, taking back 100% of the gains that were accomplished from December 19, 2009 to July 6, 2011.
Finally, on October 7, 2011, the day after the shares of ILMN cratered from $39.93 to as low as $25.71 we indicated that we were actively accumulating shares of ILMN. The average price paid for ILMN was around $30. Despite accumulating shares of ILMN, we also stated that we expected a 50% decline in the price of the stock. This logic is explained in greater detail in our February 20, 2010 posting titled "A Simple Way to Avoid Losing Money in Stocks." Suffice to say, all purchases we make are with this perspective in mind.
The announcement that Roche Holdings is going to acquire ILMN provides every assurance that we need to recommend selling ILMN and revisiting either our Dividend or Nasdaq 100 watch lists for new opportunities. Some investors would say that there should be no reason to sell ILMN at the beginning of what appears to be bidding war for the company. We maintain the view that if you've managed to receive a fair profit in a reasonably short period of time, then it isn't necessary to allow time to erode the exceptional gains that have been made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.