After six consecutive weeks down, the market has generally given up all its gains for the year; taking profits when they were there was definitely wise. But this week the market is up—so far—and I’m watching carefully to see which of our stocks bounce like tennis balls—and which bounce like eggs. The best tennis balls can still be your road to profits.
Overall, though, the climate is definitely unsupportive, and thus a defensive stance, including plenty of cash, is warranted.
Cabot Stock of the Week 221
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The broad market continues to trend down, so a defensive stance is warranted for your portfolio. And indeed, I have been raising cash in this portfolio in recent weeks. Nevertheless, my job here is to recommend one stock a week, so today I’ve got a real outlier for you, a fast-growing stock in the very young, but very fast-growing, marijuana sector. I originally recommended the stock in Cabot Marijuana Investor, and here are my latest thoughts.
MedMen Enterprises (MMNFF)
Over the decades that I’ve spent analyzing common stocks and advising readers on numerous systems of investing, there’s one system that I’ve come to like best, both because it’s the most natural for me, and because it brings huge profits. That system, to put it simply, is all about jumping on big trends early, when the majority of investors are still skeptical of the trend.
This system worked for dotcom stocks back in the 1990s (including a 1,245% gain in Amazon); it worked for solar power stocks after that (including a 292% gain in First Solar); and it has worked for data storage stocks, gaming stocks and Chinese stocks. Plus, it’s worked for Tesla (bought nearly seven years ago!)—which I’m still hanging on to, and which had a very good run last week.
And now it’s time for marijuana stocks! The marijuana industry is the fastest-growing industry in the U.S., growing at a rate of 27% per year. Just two weeks ago, Canada opened its market for legal marijuana. And here in the U.S., the majority of voters approve of increased legalization.
But there are still lots of skeptics! There are educated people who believe marijuana is a gateway drug. There are people who fear that the next brownie they buy will have pot in it. And among investors, marijuana stocks are often viewed with the same skepticism (or disdain) as bitcoin investments (something I have never recommended). It takes time to change a culture.
But the trend is clear to me. In fact, I launched Cabot Marijuana Investor in August 2017 when I saw this trend developing, and so far, the results have been spectacular. At the end of 2017, my marijuana portfolio was up 121%, and as I write, it’s up 35% more this year—and that’s after the big correction since Canadian legalization just two weeks ago.
Now, that correction may not be over for some stocks in the sector, especially considering that the general market’s trend is down as well. But I think some of these marijuana stocks are at good entry points now, and MedMen is my recommendation today because I believe its long-term future is especially bright.
MedMen is the leading multi-state, vertically integrated company in the U.S. marijuana industry. It grows, processes and retails marijuana—currently from 14 stores in three states—and it’s growing fast!
In fact, earlier this month, the company acquired Chicago-based PharmaCann, in a stock deal valued at $682 million; when combined, the company will be active in 12 states and have licenses to operate 79 cannabis facilities—and all the stores will operate under the MedMen name, currently the most trusted name in marijuana retailing.
Note: next week, ballot initiatives on marijuana being held in Utah, Michigan, North Dakota and Missouri are likely to extend the trend toward legalization. And eventually, federal law will change; there’s even the possibility that President Trump will endorse increased legalization as a pro-business move!
Financially, MedMen is booming. In the fiscal fourth quarter, ended June 30, revenues were $20.6 million, up 1,317% from $1.5 million the year before, and up 44% from the third quarter. There were no earnings, of course; the company is far too busy expanding.
As to the stock, it came public in June, bottomed at 2.6 soon after, and then joined the sector in a strong surge higher, hitting 5.4 in early September and 7.6 in early October. But now, with the big correction in both marijuana stocks and the broad market, the stock is back down to its 50-day moving average, and looking to build a bottom.
Make no mistake; this is a low-priced, volatile stock, and the overall market is providing some headwinds today. But the odds are good that MedMen will remain the largest retailer in the industry, and that, in turn, an investment in MedMen at this level will look very smart down the road. Thus, keeping it simple as usual, the portfolio will buy at the average of the market price tomorrow.
MedMen Enterprises (MMNFF)
10115 Jefferson Boulevard
Culver City, CA 90232
855-292-8399
www.medmen.com
CURRENT RECOMMENDATIONS
Every day you can read pundits’ commentary on the stock market, including opinions about whether we’re in an official correction or bear market. Alternatively, you can avoid those opinions and just focus on the stocks you own, because after all, that’s what really matters to your financial future. In this portfolio, I’ve sold seven stocks over the past three weeks as charts deteriorated—and avoided some big drops—and I’m selling only one more today. A good number of the stocks still in the portfolio are already well into their rebounds (particularly the stocks sourced from Cabot Dividend Investor), while others are building promising bases, and I want to give them a chance to resume their uptrends, if they can. And you should be doing the same in your portfolio, while always working to ensure that your risk exposure is justified by your potential rewards.
Altair Engineering (ALTR), originally recommended by Tyler Laundon in Cabot Small-Cap Confidential, and featured here two weeks ago, continues to rebound, increasing the odds that we got in near the bottom—which is one advantage of buying something every week. In Tyler’s latest update, he wrote, “Altair is a simulation software stock that helps companies design new products, use new materials, cut waste and get products to market faster. The stock is off its 52-week high by roughly the same amount as the S&P 600 Small Cap Index (about 15%), above its 200-day line, and above a zone of support in the 33-35 price range. The message is the same as last week; Altair’s risk vs. reward profile looks attractive here so keeping at Buy. This week the company announced it’s expanding its relationship with Oracle to offer a new flow simulation solution (Computational Fluid Dynamics, or CFD) on Oracle Cloud Infrastructure. Offering these solutions in the cloud means Altair’s customers can access GPU-based solvers on-demand, without having to purchase, maintain and upgrade their own hardware.” BUY.
Centennial Resource Development (CDEV), originally recommended by Mike Cintolo in Cabot Growth Investor, is an oil driller and producer in West Texas with great growth potential, but since we bought it, all it’s done is go down—like the broad market. Mike has stopped following the stock for now, and I could cut the loss here, but I’m going to hold, because the stock looks oversold technically, at least in the short term. Also, earnings are likely out in early November, and could boost it back into its uptrend. HOLD.
General Motors (GM), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High-Yield Tier, continues to rebound. In her latest update, Chloe wrote, “The automaker will release third-quarter earnings October 31, before the market open. Analysts are expecting GM to report a 3.6% bump in sales, to $34.84 billion, but a 5.3% drop in EPS, to $1.25.” HOLD.
Green Dot (GDOT), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is a virtual bank that’s the leading provider of prepaid cards, debit cards, checking accounts, secured credit cards, payroll debit cards, consumer cash processing services, wage disbursements and tax refund processing services. The stock fell to 73 nearly three weeks ago and has been working to build a base in the area since. Additionally, it’s now right at its 200-day moving average, which also offers support. BUY.
GrubHub (GRUB), originally recommended by Mike Cintolo of Cabot Growth Investor, fell like a stone last week after reporting earnings. Here’s what Mike wrote: “GRUB reported a great third quarter last week, but also announced its intention to invest more money during the next quarter or two, which is likely to crimp earnings. In this environment, that news brought a big wave of selling, causing the stock to dive below long-term support on big volume. Like many names, Grubhub could easily bounce at some point, but we can’t ignore the technical action in the stock. We’ll sell what’s left of our relatively small position.” I, too, believe there’s good potential for a bounce, but I also see the stock as severely damaged, technically, and that will take time to heal.” SELL.
Guess? (GES), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, was the best bouncer in the portfolio today, and Crista for one is not surprised. In her latest update, she wrote, “Wall Street expects EPS to grow 55.7% and 22.0% in 2019 and 2020 (January year-end). Corresponding P/Es are low in comparison to earnings growth rates, at 19.3 and 15.8. GES is not moving in sync with the correction in the broader stock market, and is therefore likely to rise much sooner than most stocks.” HOLD.
Huazhu Group Limited (HTHT) (previously known as China Lodging Group) was originally recommended by Paul Goodwin of Cabot Emerging Markets Investor and now it’s one of the Heritage Stocks in this portfolio, which means that I’ll hold through periods of poor performance to benefit from the positive long-term fundamentals. Unfortunately, we remain in one of those periods, with foreign markets performing even worse than our domestic markets—but I can be exceedingly patient, because I continue to believe in the firm’s great long-term growth potential. HOLD.
Match.com (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader and featured here last week, is down only a hair since then, and that’s pretty great, considering the broad market. If you haven’t bought yet, and you want a little more growth in your portfolio from the leading dating company on the planet, you can buy here. BUY.
McCormick & Company (MKC), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Safe Income Tier, remains the star performer of the portfolio, hitting another new high today, making our 10-month investment in this defensive stock an impressive success. In her latest update, Chloe wrote, “MKC continues to defiantly march to new highs; groceries are the classic counter-cyclical investment and conservative stocks are the hot ticket of the day. The spices company is a Dividend Aristocrat and reported excellent third-quarter earnings three weeks ago, triggering a flurry of upward estimate revisions.” HOLD.
STAG Industrial (STAG), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier, is in the third week of a strong rebound. In her latest update, Chloe wrote, “STAG will report third-quarter results November 1, after the close. Analysts are expecting the warehouse REIT to report FFO of $0.45 per share, up 4.3% year-over-year. Revenues are expected to rise 12.3%, to $87.73 million. The stock dropped briefly through its 200-day moving average two weeks ago, but has rebounded and been above it since the middle of last week.” BUY.
Synchrony Financial (SYF), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, has moved lower along with the broad market in recent weeks, but Crista still thinks holding will pay off. In her latest update, she wrote, “Synchrony is a consumer finance company with $56.5 billion in deposits and 74.5 million active customer accounts. Synchrony partners with retailers to offer private label credit cards, and also offers consumer banking services and loans. The 2018 consensus earnings estimate rose to its highest point this year. Analysts now expect full-year EPS to increase by 35.9% and 24.4% in 2018 and 2019 (December year end). The 2019 P/E is 6.3.” HOLD.
Teladoc Health (TDOC) originally recommended by Mike Cintolo in Cabot Growth Investor, sold off far less than most growth stocks and has now established a double bottom at 62. In Mike’s latest update, he wrote, “TDOC is another stock…that’s had a sharp decline, which is why we took partial profits (selling one-third of our position) in the first week of October. But it’s still well above its 200-day line (which is way down near 55) and, recently, has held a smidge above its prior low (63 this week vs. 62 two weeks ago). Long story short, while painful, the correction looks normal to this point, though it’s likely the stock (like most others) needs time to build a new launching pad. The big key will come on November 1, when the company will release its quarterly report. Teladoc nudged up its guidance and revealed many fundamental nuggets at its Investor Day last month, but any new outlooks and updates will be key, especially regarding the uptake of its virtual care services with any large customers. If you still own a partial position, sit tight.” HOLD.
Tesla (TSLA), originally recommended in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio—and I’m glad I’ve held. Recent action has been very positive, thanks to an excellent third-quarter earnings report. Revenue grew 129% from the year before to $6.8 billion, while earnings (not losses!) were $2.90 per share. Additionally, the Model 3 was the best-selling passenger car in the U.S. in the quarter in terms of revenue. Looking long-term beyond the automobile business, one optimistic note in the report was this: “At the end of Q3, there were almost 450,000 Tesla vehicle owners around the world. Ultimately, we believe this group will become the largest demand generator for our residential solar and Powerwall business.” As for the stock, it responded quite well to the report and is now up 33% from its lows of three weeks ago—but it remains below long-term resistance at 390. HOLD.
Ulta Beauty (ULTA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, looks pretty great, all things considered—and maybe that’s because it’s viewed as both a growth stock and a consumer staples stock. Over the past five weeks, it’s dropped to 265 four times, but each time, it’s bounced back. That’s a good sign of support, while resistance, still at 290, is not far away. If you’re underinvested, you can buy here. BUY.
WNS Holdings (WNS), originally recommended by Paul Goodwin in Cabot Emerging Markets Investor, is an Indian outsourcing firm with a solid growth story. In his latest update, Paul wrote, “WNS reported its Q3 numbers this morning and the market liked what it saw. Revenue was up 7% and earnings grew 23%. The company added seven new clients during the quarter and expanded 13 existing relationships. The stock spiked higher at the open, then dipped sharply, but wound up the day trading in the middle of the range it has occupied since October 16.” Additionally, the stock is now smack on its uptrending 200-day moving average. BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED November 6, 2018
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