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Released on Monday, December 12, 2011, 8:00 AM ET

Pittsburgh, PA (SpeculatingStocks) - The Cooper Companies, Inc. (NYSE:COO) have skyrocketed. On December 9th, the stock opened approximately $8.00 per share higher than it closed on the previous day—and it continued to rise throughout the day before leveling off. Not surprisingly the stock has recoiled slightly to form the now trading range of $63.00 per share to $69.87 per share. Currently COO is trading at $67.81 per share ( 4:00 PM EDT, December 9th, 2011) with a strong volume averaging 1.32 million shares per day.

This recent jump in the stock's price occurred after Cooper Company released its earnings report with guidance for the remainder of the year and the fourth-quarter. Needless to say, the report overshot analyst estimates by more than $0.20 per share in earnings, causing the market to react in frenzy and the stock price to soar.

But what few investors are really thinking about are the legal contingencies of this firm. Well we've found a few things you might want to watch out for, and some ways to play this stock that you might be interested in—we aren't saying it's not a pretty stock, but sirens are beautiful...and deadly.

Cooper Companies products are currently under investigation by the FDA for possible quality issues, and after a fiasco in October, 2011, the company was forced to recall millions of its contact lenses due to quality-control errors; since then the FDA hasn't let down its guard.

A litigation firm, Robbins Umeda LLP, has now formed a legal investigation into the fiduciary duty of the officers of Cooper. In a short announcement of their intentions, Robbins Umeda has objected to Cooper's attempt to 'downplay' and even cover-up the effects of their quality-control oversights, an action, Robbins Umeda holds, that has devastated the stock price of Cooper and its overall market capitalization.

While recent results on earnings suggest that the damage from October has not affected the firm’s ability to produce results, this new threat could lead to a substantial liability—one which they will have to recognize. Add to this the possibility that the FDA could turn up more non-consumer friendly actions Cooper has been taking to produce its goods, and you have a pretty large contingency.

Now let's say you are still enticed by Cooper's apparently profitable business model—and for good reason, as the firm’s stock price has shown a stable, historically-positive growth for the past 2 years—how might you go about playing this stock so it doesn't come back and bite you?
Well if you plan on going long, that is if you think the position is a good time to buy and hold for stock’s appreciation either in the long or short term, then you might also want to keep a short-hedge up your sleeve just in case.

A short-hedge is when an investor purchases a stock long and prior-to or when the stock begins to show signs of dropping off, sells the stock short as a hedge against losses on the long position. This way, any losses you have on the long position—should the price go south—will be offset by a gain on the short sale.

Another effective, but potentially faulty method, is to place a stop-loss sale point on the stock you have purchased long. This will execute a trade when the stock price hits or passes a certain value, a floor if you will.

This method is potentially faulty for two reasons, you could set the value of the stop-loss too close to the original purchase price, and it will execute a sale when the stock really isn't trading outside of its daily norms; causing you to be out a long-position as well as the commissions or fees. The stop-loss could also be faulty if there are not enough traders to purchase your volume; although unlikely, as traders on the floor are meant to purchase excess volume, this still could occur—in this case, make sure there is a reasonable amount of volume in the stock before attempting any placement: a key to any intelligent investing.

While COO might seem like a very nice stock, keep your wits about you, and always be vigilant. As we have seen in the past, this stock is fairly volatile and reacts heavily to market’s rough seas. Wouldn’t want to crash upon the rocks.

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