A Rare “Graduation” Signal Can Fix This Falling Knife By Lucas Downey, Contributing Editor, TradeSmith Daily On Wall Street, they say to never catch a falling knife. Anyone who’s bought into a heavy downtrend can relate. Equity values can fall a lot further than we expect. Calling the bottom is tough. That’s why, when I make turnaround bets, I make sure it’s on a high-quality company with a solid business. Not only that, I seek out signals that can reinforce an against-the-grain wager. A great example that we shared at TradeSmith in May was beaten-down Starbucks. (Disclosure: I own SBUX at time of writing.) We listed three data-driven reasons why the stock could rejuvenate. Fortunately since that post, Starbucks shares have gained 45%. Kudos to you if you were able to participate in that setup! Today, we’ll be seeking to unlock hidden value with another great company that’s fallen on hard times, Regeneron Pharmaceuticals (REGN). The company just gave one of the best votes of confidence ever: initiating a dividend. I’ll show you why history favors this “graduation” signal. But first let’s have a look at Regeneron from a technical and fundamental perspective… REGN Has an Awful Chart I personally keep track of hundreds of stocks. Understanding themes and trends is part of my job! Health care stocks in particular have been on my radar recently. Just a few short weeks ago, I noted how the group was under a lot of pressure and finally reaching the value zone. When a sector gets hit, certain stocks get smacked harder. Regeneron is a case in point. On a one-year basis, REGN has fallen 25.7% compared to the 5% gain in the Health Care Select Sector SPDR Fund (XLV). This is exactly what a falling knife looks like: 
Now, why should you ever buy something that’s clearly under such distress? Before we get to that powerful signal study, let’s do a few fundamental spot checks on Regeneron’s business. Founded in 1988, Regeneron is all about developing medicines around human antibodies. That’s been a hot space the last few years. I’m sure you remember when President Donald Trump was diagnosed with COVID-19 and was administered an experimental treatment from Regeneron in 2020. The pandemic clearly helped Regeneron’s top and bottom line. The chart below reveals how revenues peaked at $16 billion in 2021 and fell 24% in 2022. But also notice how sales have been modestly climbing since 2022. In 2024, sales hit $14.2 billion, with net income of $5.32 billion. Fast-forward and sales are estimated to reach $15.38 billion in 2026 alongside net income of $5.55 billion. This is a very profitable business: 
Up to this point, we have a falling-knife chart and a very stable business. Why do I believe Regeneron is set for better days? Management clearly does… Dividend Initiations Are Powerful Signals One year ago, I outlined two all-star companies that initiated their first-ever dividends: Meta Platforms (META) and Booking Holdings (BKNG). (Disclosure: I own both at time of writing.) In that powerful post, I highlighted how dividend growers and initiators have outperformed non-dividend payers since 1973. 
Dividends represent a slice of profits that businesses share with shareholders. When a company decides to make this move, clearly the top brass is confident in the future. Regeneron initiated its first dividend of $0.88 per share on Tuesday to be paid on March 20 to shareholders of record as of February 20. I believe this graduation signal can spell great fortune for REGN. Here’s why… Back in my write-up a year ago, I listed a handful of high-quality companies with notable initiations throughout the last decades. There’s bias to this list, but the fact remains that great businesses tend to see healthy gains in the months and years after the dividend initiation. And as a reminder, I listed META and BKNG as great businesses a year ago. Since their initiation date, META has climbed 49% and BKNG has jumped 36%. Now you should see why I’m so excited for REGN: 
(Disclosure: I own MSFT, HD, WMT, SBUX, COST, NKE, META, and BKNG.) It’s never advised to catch a falling knife. However, pay attention to companies with solid businesses that initiate dividends. There are many investors out there that focus on this single metric because they know that history proves it. Make sure you’re paying attention to powerful signals when they strike. Every now and then, companies graduate… Don’t bet against them! Regards, Lucas Downey
Contributing Editor, TradeSmith Daily | 
