Why RR Donnelley Was The Long Trade Of The Day

RR Donnelley & Sons Co RRD has been an attractive buy for a while, but this week has moved into "must buy" territory thanks to a few different factors.

After a stellar Q2 earnings report back on July 29 which saw the stock rise from $16 to $19, RR Donnelley was downgraded by a few ratings firms which cited the company as fairly valued following the sharp rise in price.

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RR Donnelley spent the months of August and September in a slow but consistent sell-off, finally basing around $15.40 heading into October. The long base, coupled with the strong earnings strength and technical momentum made RR Donnelley an attractive buy in mid-October after the stock pushed above its 50-day moving average for the first time since early-September. However, due to the October 24 Q3 earnings report, it wasn't easy to play.

RR Donnelley's Q3 earnings were once again above expectations, which pushed the stock up to weekly highs of $19 in early-November. Recently, RR Donnelley has once again pulled back to the mid-$16s, based, and is back on the upswing. It's clear that RR Donnelley is currently trading a range from roughly $16 - $19 despite favorable earnings announcements and sector strength in Industrials.

From a technical perspective, RR Donnelley's long-term uptrend remains intact, despite the sideways intermediate-term price action. The stock is currently sitting above its 50-day moving average, and has also crossed above its 5- and 10-day moving averages this morning, which is a bullish sign.

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RR Donnelley has a clear short-term upside to $19, given that it was there just two weeks ago. RR Donnelley looks to be developing an intermediate-term uptrend from it's late-September lows, and if so, current prices would represent the "higher lows" of the next leg up, which would move back to a test of $19. The upside from current prices is +10.2%. If a stop was set just below the "higher lows" of $16.45 a week ago, the downside is -4.25%, making the reward to risk ratio about 2.4 : 1.

With a favorable fundamental backdrop, a convincing technical picture, and plenty of upside, now is the time to finally jump in on RR Donnelley for a test of $19.

When to Consider Entering The Trade:

At the current price (~$17.14), or on a pullback to the 50-day moving average ($16.76).

When to Consider Exiting The Trade:
At a close below $16.45 (Breakdown) / An intraday price of $18.75 or above (Profit-Taking)

Disclosure: At the time of publication the editor and affiliated companies own the following positions: RRD

Note: Positions may be bought or sold while this publication is in circulation without notice.