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RoboStreet – September 20, 2018
Fortune 500 Proxies to Play the Hot Pot Sector
Investors are being bombarded with emails and promotions surrounding the cannabis craze within the stock market. The trend toward the legalization of weed has created “reefer madness” in the price action of several pot stocks where volatility is about as extreme as anyone could imagine. Canada has taken the lead in making pot legal throughout the entire country. Marijuana use in Canada will be legal in mid-October after legislation cleared regulatory hurdles in June.
There are several ways to invest in the potential marijuana boom. Many are plays for recreational marijuana which will boom if legalization goes as expected. Many are medical plays which are incredibly likely to be successful but the upside is smaller. The last is companies that happen to have a lot to gain from the marijuana industry but aren’t necessarily reliant upon it for success.
These headlines have caused potstocks to soar. While there are many micro-cap pot stocks that trade only in Canada, a handful now trade as American Depository Receipts (ADRs) and are cleared to be owned by most of the major brokerage firms. American investors eager to get in on the next gold rush have pounced on these recently listed ADRs in what resembles bubble-like panic buying that has sent most of these stock valuations sky high. There is even an exchange-traded fund, the ETFMG Alternative Harvest ETF (MJ)that has become wildly popular of late.
As a result, the hottest names in the sector have soared and crashed in recent weeks, but like any shakeout, the shorts got crushed, the panic buyers that paid top dollar are seeing their investment capital go up in smoke and the current pull back is going to define which investors have the stomach for the price swings. Of the names most coveted, Canopy shares have doubled this year and Tilray, which made its debut in July, rallied 500% since Labor Day, hitting $300 before getting knifed back down to $158 yesterday.
A major catalyst that is fueling the pot stock rally and bringing credibility to the whole investment theme is the interest and entry by Fortune 500 companies into the space. Marijuana stocks spiked higher early this week after a report that the biggest beverage company of them all is looking to get into the industry.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
Aurora Cannabis, a Vancouver, Canada-based cannabis producer, rallied more than 20% in trading after Bloomberg reported Coca-Cola is in talks with Aurora to develop weed-infused beverages. Any partnership between the two would likely develop health-focused beverages aimed at easing inflammation, pain, and cramping, the report said. Coca-Cola offered this statement:
“Along with many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world. The space is evolving quickly. No decisions have been made at this time.”
Other big-name companies that have strategic plans and partnerships in place include Scotts Miracle-Gro, a leader in the hydroponics industry. The company is a dominant player in the supplies that growers depend on for high-quality cannabis. Though the move in marijuana stocks is mostly headline-driven thus far, Coca-Cola wouldn’t be the first beverage titan to test the waters with an investment in a cannabis producer.
Corona beer maker Constellation, for example, upped its bet on the industry last month, announcing an additional $4 billion stake in Canopy Growth. Molson Coors, too, announced in August that its Canadian unit is entering into a deal that will develop cannabis-infused beverages in Canada. Molson Coors Canada is partnering with Canadian cannabis producer Hydropothecary Corp. to create a joint partnership “to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization.”
One of the hardest propositions for investors to achieve is to find a low volatility asset that will greatly benefit from a high-growth industry. From the field of potential candidates, my AI system is flashing a buy signal on Constellation Brands (STZ) which makes for a super high-quality proxy for investors to have good exposure to the marijuana boom. Shares of STZ are trading at $218 and down from the 52-week high of $236.62. Money flow is bullish and so is the outlook for the next 20, 30, 40 and 50 days as measured by my Tradespoon Annual Seasonal Chart.
We’veowned Constellation Brands in the RoboInvestor Portfolio with the expectation that the stock can take out the recent high over the course of the next several weeks. Having an appetite for exposure in the marijuana sector in one’s portfolio is all well and good, but doing it by way ownership in a blue-chip company is following the smart money. And at Tradespoon, we like to think that we’re pretty smart.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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