Entering Tyson Foods (TSN)

Market Cap: 17.34B
Industry: Consumer Goods 

Forward PE: 13.15

EPS Past 5-years: 29%

EPS Next Year: 10.43%

EPS Q/Q: 13.70%
Price to Sales: .42
ROE: 11.90%

A look at the financial highlights above show a steady growing and relatively inexpensive stock. The average PE for its peer group is near 29. This puts Tyson as one of the cheaper and faster growing companies in its industry. 

The stock has behaved very well recently and this week closed at new all-time highs. These new highs have been achieved with the SP500 trading more than 5% below its highs. I like to see this type of relative strength in stocks breaking out from large consolidation bases. 

TSN has just cleared more than 18-months of resistance.

(Weekly view)

 Here is a look at the weekly indicators as well. A few items to note is that volume increased on this week's breakout, which is an indication of accumulation at these levels. The MACD line has seen a steady pullback to the Zero line. While the stock consolidated its large gains from 2013, momentum has held its "bull range" and has now put in a higher low. Another indication I really like (and is discussed at length by William O'Neil in his books) is how the Relative Strength line has been in an uptrend since early summer while the stock was emerging from its base formation.

While these kind of momentum moves haven't been very successful in our current market, we simply never know when a move will be real, leading to large gains. For the past year breakouts like this have been sold, providing little for sustained gains. 

It is because of this reason that we always use a stop loss to prevent a false signal from turning into a portfolio ruining trade. Small losses can be recovered from, big losses cannot. Our goal is to look for patterns that suggest the potential for very large upside moves. We then setup a structured plan such that any failure of the signal will only result in a minimal loss of principle capital. 

Tyson Foods is offering that kind of opportunity currently. 

This stock can have fairly noisy swings within its trading range. It's not uncommon to see it swing 5-10% in a week or less. It's also had quite a move in the last several trading days. Some consolidation would make sense in the near term. Based on the possibility of short-term continued volatility, our initial stops will be placed below the recent consolidation and rising 20 and 50 WMA's. We will be using the swing low at 41.38. A violation of that level would be the lowest weekly close in 18 weeks. A break of that support would suggest a failed breakout and the stock would need more consolidation going forward. 

 Depending on your preferred entry method of choice, this may setup more attractively for you in the near future. For me and my timeframe I'm happy to enter here knowing we will be taking a slightly smaller initial position based on the recent move, but will likely have a chance to add to this purchase should it move in our favor. 

Successful investing isn't about "always being right". It's about identifying strong risk/reward setups and letting them play out. No one knows where a stock will go regardless of how convincing they sound. What we need to do is have a plan in place that minimizes risk, maximizes gain and limits emotional reactions.