Making A Case For Cannabis Stocks
Feb. 4, 2018 2:11 PM ET
By Seeking Alpha - JohnCM
Includes: HMLSF, MJX, Canopy Growth Corporation (TWMJF)
Summary
It's time to turn "green" with anticipation, looking for the next "crop" of Cannabis mover and shaker stocks.
The MJ stock market had to correct to survive.
Become a stock "picker."
It's like being administered terrible tasting medicine. You hate it, but you know it is necessary. The Cannabis stock market correction was the medicine MJ equities needed. Why did the marijuana index become so ill? Was it evil banker's greed? Was it a ponzi scheme ran amok?
Think of Space X heavy with it's 3 booster rockets.
#1. Exchange Traded Funds - They need to invest their cash.
#2. Canopy - The friendly face bellwether was poised to fly high.
#3. California and Canada - 75 million people strong. Enacting new laws favoring recreational marijuana use.
Am I the only one who looked at the stock charts of every company I have studied recently and marveled at how low the stock prices were in November 2017? Where were the pot heads in October? Scads of MJ tickers were under $1.00 per share. I believe MJ stocks were undervalued and undiscovered heading into the 4th quarter of 2017.
And then we had liftoff. It wasn't just a high tide lifting all pirated mj smuggling speed boats, it was a tsunami of renewed interest in the Cannabis industry. When Canopy touched $40.00 per share what did you think? Other than to proclaim "wow!" You know what I thought? MJ stocks are in trouble. The ETF's were in trouble. Why? Canopy was boxed in. It had nowhere else to go but flat-line or head lower. It had run out of head room. If anyone was paying attention to the Relative Strength Indicator numbers, you would have seen the warning signs.
So, in a rush, we headed down. And, as I hate to say it, it was a good thing. What I don't like is that we overshot our target. My target for Canopy was $28.00 to $32.00. Instead we settled at $24.00. This is OK, unless you are trading in margin and you get "stopped out". It is OK because we will get back to $28.00 soon enough.
Where to now? The entire MJ sector is oversold in my opinion. With the exception of a handful of U.S. companies that pride themselves on manufacturing or selling hemp derived products. With this rush for the exits, capitulation is usually overdone. We need Canopy to be fairly valued and to possess a stock chart that is not hyper, sick or broken. With that chart in place, MJX and Horizons can be sane and healthy. We have pushed the reset button. MJX is close to where it began at $28.00.
Now instead of being being assisted with a rising tide, you get to actually perform DD on individual companies. Do some homework utilizing OTCMarkets or Sedar. Pick and choose from the best, in regards to their current stock price.
Every story has a monkey wrench. Our "tool" is the U.S. stock market. Specifically the DOW and NASDAQ. An improving economy is helping to nudge up interest rates, which may put a damper on the overall marketplace. When the DOW is red, it is a drag on the marijuana index. In which case I suggest diversification. As with any portfolio, gauge when you can be aggressive. Although going "all in", with additional risk, can be fun and exhilarating, you want to survive in this market, not just take a zip-line to the poor house.
Coupled with your Cannabis equity holdings, start to consider adding into your portfolio mix the following; precious metals, defense stocks, liquor, pharmaceuticals, International equities, energy, utilities ( shudder ) and yes, king CASH.
Disclosure: I am/we are long MJX.
JohnCM
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