The marijuana industry presents tremendous opportunities for investors.
Those who are naive think that all they have to do is buy some marijuana stocks. Those who are sophisticated know that just buying some marijuana stocks at current elevated prices and holding them is likely a recipe for losing a lot of money.
Astute investors with experience recognize that while some will make millions by investing in marijuana stocks, most will lose their shirts. This makes sense because of high volatility, stock prices being divorced from fundamentals, pump-and-dump schemes, trading based on sentiment and short-squeezes and occasional frauds.
Investors have reacted favorably to the 11 pointers I gave them. Please see “How to potentially become a marijuana millionaire, albeit carefully.” Investors have been asking me: If I could buy only one marijuana stock, what would it be? Let’s explore with the help of a chart.
Chart
Please click here for an annotated chart of marijuana stock Canopy Growth CGC, +6.15% Please note the following:
• The chart is weekly, not daily. When looking for a longer-term investment and not just a quick trade, it is always better to start with a weekly chart.
• The chart shows the most recent buy signal given by The Arora Report.
• The chart also shows that in the previous cycle, The Arora Report sell signal was given right at the top. Subsequently, Canopy Growth stock lost more than one-third of its value. This is significant because marijuana stocks are very volatile. Even when the intention is to hold for the long term, there are times when it is prudent to take partial profits.
• The chart shows the timing of the $4 billion investment by Constellation Brands STZ, +2.46% in Canopy Growth. Constellation Brands paid a whopping premium of 51.2%. Constellation Brands is best known for its Corona beer.
• The chart shows volume has picked up during this “up” leg. This is positive, as it shows conviction in buying.
• The chart shows that the relative strength index (RSI) is overbought. This means that the stock can easily pull back, and most investors who are not in the stock may consider buying on a pullback. The Arora Report has provided a buy zone to buy the stock on a pullback for those who do not already own it.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
Canopy Growth advantages
Canopy Growth has the following advantages over other large marijuana stocks such as Tilray TLRY, -4.70% Cronos CRON, -0.72% Aphria APHQF, +5.56% and Aurora ACBFF, +6.01%
• On a relative basis, Canopy Growth is cash-rich. That means it can capture growth opportunities as well as withstand the ups and downs of the industry. Also, investors like cash-rich companies. A good example of a cash-rich company that investors like is Apple AAPL, -0.23% Of course, Canopy Growth is very different from Apple.
• The Arora Report has projected that twice as much money will be made in marijuana drinks compared to marijuana itself. This is the reason there is so much excitement about stocks such as New Age Beverages NBEV, -12.75% A new name to consider is Craft Brew Alliance BREW, +1.85% Please see “Marijuana beverages are the new thing, but investors should only take sips.” Significant ownership by Constellation Brands will provide Canopy Growth with a tremendous amount of expertise in the beverage space, though not at the same level as Coca-Cola KO, +1.31% and PepsiCo PEP, +1.60% could provide.
• Constellation Brands has a large distribution network. Canopy Growth should be able to take advantage of this distribution network as the legal landscape changes.
• The Arora Report subscribers have made a lot of money from our portfolio companies getting bought out. To date, 139 companies have been bought out. There is a high probability that, in due course, Canopy Growth may be bought out by Constellation Brands.
• While most investors are focused on Canada and the United States, there is a big international market for marijuana. Canopy Growth appears to be well-positioned.
• All marijuana stocks are extremely expensive, and this is a note of caution for marijuana investors. For this reason, proper position size is important. On the positive side, marijuana stocks often do not correlate with the Dow Jones Industrial Average DJIA, +0.15% S&P 500 SPX, -0.04% and Nasdaq 100 NDX, -0.62% By some measures, the valuation of Canopy Growth’s stock is better, on a relative basis, than other marijuana stocks.
The technique every investor should learn
One of the many techniques we use at The Arora Report has often doubled our returns while considerably lowering risks. In this technique, core positions are slowly accumulated on dips at favorable prices for the long term. The core positions are then opportunistically surrounded by additional trades, often but not always short term in nature.
In sum, if you could buy only one marijuana stock, consider Canopy Growth.
Please also read:
Marijuana investors got burned by Pepsi — how to avoid this mistake in the future
Marijuana beverages are the new thing, but investors should only take sips
How to survive marijuana stocks’ rollercoaster ride
The new ‘Tilray’ marijuana stock is here — this is how to set up the trade
Enjoy Coke — and the money it might make for marijuana investors
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.
