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Oct. 8, 2018, 4:13 p.m. EDT

If you buy only one marijuana stock, this should be it

Canopy Growth has more advantages than any other company in the marijuana industry

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By Nigam Arora


Bloomberg

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 /zigman2/quotes/200603886/composite CGC -5.70% . 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 /zigman2/quotes/207737284/composite STZ -2.04%  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 /zigman2/quotes/209129655/composite TLRY -0.08% , Cronos /zigman2/quotes/206842762/composite CRON -2.87% , Aphria  and Aurora .

/zigman2/quotes/200603886/composite
US : U.S.: NYSE
$ 14.46
-0.87 -5.70%
Volume: 8.33M
Nov. 18, 2019 1:55p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$5.33 billion
Rev. per Employee
$115,039
loading...
/zigman2/quotes/207737284/composite
US : U.S.: NYSE
$ 175.99
-3.66 -2.04%
Volume: 998,626
Nov. 18, 2019 1:55p
P/E Ratio
45.61
Dividend Yield
1.71%
Market Cap
$34.01 billion
Rev. per Employee
$842,260
loading...
/zigman2/quotes/209129655/composite
US : U.S.: Nasdaq
$ 19.92
-0.02 -0.08%
Volume: 1.02M
Nov. 18, 2019 1:55p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.00 billion
Rev. per Employee
$62,689
loading...
/zigman2/quotes/206842762/composite
US : U.S.: Nasdaq
$ 6.10
-0.18 -2.87%
Volume: 6.03M
Nov. 18, 2019 1:55p
P/E Ratio
7.02
Dividend Yield
N/A
Market Cap
$2.16 billion
Rev. per Employee
$55,248
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