Weed Stocks-Are We Too Late to the Party?

Weed, Pot, Smoke, Blunts, Bongs, Oils, Edibles are all terms affectionately used to describe the use and industry now known as medical marijuana and the soon to be legal Cannabis Industry in Canada.

I don't really care about any of that stuff right now but only the question, "Is now a good time to invest or have I missed the boat?"

Well, in keeping with certain criteria when buying for my Gambling Portfolio , I believe that some of these stocks are ripe for the picking.

Let's look at Aphria (APH)

Current Price: $12.09
52 week high/low: $5.11/$24.75
Avg. volume: 4.4mil
Latest volume spike: 6mil (Friday 8 June/18

About the Company (from Google);

"Aphria Inc., one of Canada's lowest cost producers, produces, supplies and sells medical cannabis. Located in Leamington, Ontario, the greenhouse capital of Canada, Aphria is truly powered by sunlight allowing for the most natural growing conditions available. Aphria is committed to providing pharma-grade medical cannabis, superior patient care while balancing patient economics and returns to shareholders".

Why I Like It Here

It has been as high as $24.75 and is now trading at $12.09. That is a double from here. Can it get that high again? (pardon the pun) good question but why not?

Ok, forget that possibility. Let's just say it reaches up to only within 50% of it's all time 52 week high. The stock would have to get to $18.

On a 4K investment which right now is my purchase limit, that would work out to a profit of;

Purchase: 330 shares @ $12.09 = $3,989.70 + $9.99 commission = $3.999.69 

Sell limit price = $18

Total Profit Potential= $18 X 330= $5,940 - $9.99 commission = $5930.01

$5930.01 - $3999.69 = $1,930.32

Can I really make almost 50% on just one stock purchase? Yes I believe so but you have to have patience. If you can't sleep at night then just sell once your stock goes into the green.

I also strongly believe in buying stocks after they have traded awhile and are then beaten to a pulp. Once they sit there for a bit and start to rise from the bottom I pounce.

Is Aphria a good candidate for that?

This is the essence of speculating and gambling in the stock market. This is what I do with money I can afford to lose and what I always scan the stock tables for. 

It really does take guts to buy stocks when they have lost so much value and significantly off their 52 week highs. This is not for the faint hearted.

Would you rather buy what some newsletter is recommending or some TV talking head is buying? Go ahead but I prefer to just watch what the market is telling me and act accordingly based on price, volume and the stock's position based on it's 52 week high/low.

Now that APH is moving back up in price and volume it is worth a look. This also indicates to me that the market is interested and behaviour is changing.

Does this mean that APH is getting poised to rocket higher or setting us up for a false head fake type move down? 

The market will tell you if you're willing to listen.

Remember the 'Loss Rule' and sell if the stock loses 10% after you buy it. If the stock dropped to $10.85 after I bought it I would have to sell so I don't get too burnt by the market. Preserve your capital and don't get too greedy. If it continues to show strength on Monday, I'll be a buyer.

Watch List

FIRE

ACB

MUX

KAT

BXE

LTV
NMX
APH

What's on your watchlist?

Happy Trading!

Is Leonovus a Buy?

Blockchain Technology is an area of the market currently hot with investors looking for opportunity. One stock I have added to the Watchlist as of yesterday is Leonovus (LTV.V) Inc.

From Google;

"LeoNovus Inc., a cloud solutions software company, provides software defined object storage solutions; and governance, risk management, and compliance solutions for enterprises. Its software-defined storage and intelligent network enables secure and high-speed on-premise, hybrid or public cloud computing. LeoNovus Inc. is based in Ottawa, Canada."

I don't get into fundamentals when looking for short term trades because I don't plan on holding it for very long. Let's look at what's happening to this stock and market reaction.

LTV jumped up 23.3% to close @ 0.185 as of Friday 8 June 2018.
Volume was 1.2 mil, that's significantly higher than the average daily volume of 850K.

The 52 week high/low is .05/0.70
If the stock doubled from here it would still be almost 50% below it's 52 week high. This could be a tremendous opportunity on a purely volume and price breakout.

This is the kind of stock I look for when searching the tape;

• trading below 50% of it's 52 week high
• price rising and volume breaking out
• after a long downtrend stock is rising
• insiders buying (could be why it's up)

I believe all the risk in LTV is to the downside.

It is also in a sector that is trending up as companies look for cloud based solutions. I have no idea what caused the stock to fall in price so dramatically. I'm only interested in a short term punt to make some money. I believe the odds have now turned up in our favour.

If the stock opens higher on Monday I will be a buyer. If it gives up all of Friday's gains I'll wait.

If it matters to you and you love to consult the charts for trading opportunities then LTV just broke through it's 50DMA on Friday also.

My Current Gambling Portfolio

Eldorado Gold (ELD) down 3.9%

Excellon Resources (EXN) up 7%

Tahoe Resources (THO) up 2.2%

Wesdome Gold Mines (WDO) up 6.1%

Total Gains on $17,249.46 = $430.54 or 2.5%

Stocks were only purchased on 31 May and 7 June. You can see if your timing is right spectacular gains over the course of a year are possible. If ELD continues to under-perform the gold sector I will sell and buy something else.

Happy Trading!

My Watchlist of Gambling Stocks

As promised in my last post I will show you a list of stocks I'm considering buying for future purchase. If the stock retreats for a few days in a row, I will have no further interest.

My current gambling portfolio has 4 positions. I like to hold 5 at all times to spread out my risk. Current sectors of interest and value seem to be in the weed, lithium, uranium, gold and silver sector.

There are others that have been beaten down but you have to judge on your own where the trends are. Just because a stock has shot up, doesn't mean you should step in and buy.

I have never had any success buying a Canadian healthcare stock. They are all beaten down but I rarely buy anymore.

I have also sold stocks after a loss and then they started to move higher. Two stocks that come to mind are BDI and NAL. You would never hear of them being recommended taht's why you have your own list and lsten t what the market is giving you. I have to work on my patience because both these stocks are up 33 and 21% respectively since I sold them.

I love that oil services sector because you aren't exposed to the commodity risk from oil itself. I was in the right space, just sold too early.

Stocks I'm Watching

Katanga Mining (KAT) 

Current Price $1.02, 52 week high $2.83, volume 917K. Stock is liquid, in the copper sector and has moved up from .93 cents since I put it on my watchlist.

Nemaska Lithium (NMX)

Current Price $0.98, 52 week high $2.44, volume 3.1mil. Stock trades a lot, in the hot lithium space and well below it's 52 week high.

Bellatrix Exploration (BXE)

Current Price $1.35, 52 week high $4.35,volume 434K. Oil and Gas sector and beaten down. This was a $50 stock 5 years ago.

Aurora Cannabis (ACB)

Current Price $9.64, 52 week high $15.20, volume 23mil. In the hot Cannabis sector and down significantly. Trading above my 50% threshold but just watching it closely. It can still represent good value at this level and may not drop further. It has been steadily rising for weeks, I regret not buying earlier.

This list changes daily for me. Many opportunities are missed due to lack of funds and having bought my allotment of 5 stocks. never be afraid to add stocks and delete them if they don't move up. This is also great practice and gauge your stomach for spending money on gambling.

This is no different than buying lottery tickets and you can lose everything. You can eliminate that risk by selling once your stock goes down 10%. Never more than 15%. Protect what's left of your capital at all costs and buy something else. Try not to sell too soon.

Notable Mentions

Aphria (APH)

The Supreme Cannabis Company (FIRE)

Pengrowth Energy (PGF)

If this is not for you and you want a Worry Free life then you have other options. Happy Trading. 

My Gambling Portfolio

If you have some extra money laying around why not take a gamble on the stock market? Use money you are comfortable losing and I'm talking about losing it all.

I do this from time to time to try and squeeze out some extra capital gains from my portfolio. It's important to remember that I don't use money I have saved for retirement or that I'm counting on for an emergency.

This is money that Harry Browne would refer to as a Variable Portfolio.
I like to call it My Gambling Portfolio. You simply construct your holdings in a separate account usually an open or non-registered account with your discount broker. I start with 20K and pick 5 stocks, investing no more than 4K in any one position.

I may hold these stocks for a week, a month or as long as 3 months. As long as the stock is showing positive momentum to the upside I keep holding. As soon as volume picks up to the downside or has topped out, I sell.

This takes a lot of patience and practice. This is why you only use money you can afford to lose. I will only let a position lose 10-15% before I sell it and buy something else with the money that is left over. This is to keep your losses to a minimum. I believe this is how to get ahead playing this game. It is a game and these are some of the buying and selling rules I follow.

How I Buy Gambling Stocks

• scan for stocks making huge percentage gains that day
• filter out the stocks trading 50% below their 52 week high
• eliminate those stocks above 50% of their 52 week high
• stock must average 50,000 shares traded
• I only buy stocks listed on the TSX
• I don't buy TSX Venture stocks, too risky

By picking stocks 50% and under their 52 week high you have a good chance it will get back to that level. It's been there before so I'm taking a gamble it will reach that again. This is how I hope to eliminate my risk.

Once the stock has reached that level I put it on a watchlist for at least 3 days before I buy it. I want to make sure it's moving up before  commit.

Example: Stock XYZ has jumped 10% today and closed the trading day at $1.50 after trading over a million shares. I check the 52 week high/low and it's $1.10/$4.20. This represents a $2.70 upside before i reaches it's 52 week high. Almost 200% upside. Let's say I sell it at $3.00. That would give me close to a double if I bought the stock around those levels. This is what I'm after.

When I Sell a Stock

You have to sell as soon as you realize you made a mistake and the stock was just a false breakout.It happens but you must SELL your losers early and invest in a better opportunity. It is hard to sell a losing position but you must befor it becomes a catastrophic loss. I see people hanging on after losing 50%. This is just plain stupid. Your stock would then have to double from there for you just to break even. Hard to do.

• sell when losses are 10-15% - YOU MUST!
• once trading volume dries up
• volume is rising and price is falling
• price is rising and volume is falling
• you have a 50-100% gain and market is turning over

Protect your gains and NEVER EVER average down on a losing position.You hear traders doing this all the time. I'm not a professional so I don't do this. I'm trying to protect my capital and grow it, even though this is money I can afford to lose. I can't say it enough, sell your losers early and look for better opportunities with the money you have left over.

How To Play The Game

• Divide your 20K into 5 stocks @ 4K a piece. 
• Monitor daily for gains and losses
• try for at least a 50% gain in winners
• sell when losses are no more than 10-15%
• even if you have 4/5 losers you can still make money on that one stock
• stick with it and keep building on your 20K
• if you reach 25K then up your position size to 5K 

Keep investing more in each stock as your money grows. Once a year take some of your profits and go enjoy yourself like taking a trip. This is what it's all about. Hopefully you will have some profits, just remember to cut your losses early and stick with it.

NEVER buy stocks making new 52 week highs. Many people are successful using that strategy, I've just never been one of them. You have a better chance of trying to pick stocks off their highs and are now starting to pick up again. Hopefully reaching that high again or close to it. We are just trying to go along for the ride and clip off a little of that gain.

If you are looking for money to gamble with, you might check out some of these ways to save some of your household cash flow for investing or gambling.

My Gambling Stocks 

I haven't deployed all of my 20K as of yet but have purchased 4 positions they are;

Eldorado Gold (ELD) 3000 shares purchase price = $1.54 (5.4%), high low $1.03/$4.16

Excellon Resources (EXN) 2800 shares purchase price = $1.41 (1.4%) $1.22/$2.30

Tahoe Resources (THO) 600 shares purchase price = $6.77 (1.4%) $4.75/$12.52

Wesdome Gold Mines (WDO) 2000 shares purchase price = $2.29 (1.3%) $1.64/$3.60

These are my holdings as of 8 June 2018.

As you can see all these positions are in the junior gold/silver space. I believe they all have the potential to gain 50% from current prices. 3/4 stocks are in a winning position. I'm just looking to hit singles here. If these stocks reach my goal I will sell them as long as momentum is still positive. I don't like to give up those gains once I've made them.

Before investing check the sector. Is it a positive environment?

Right now some Weed stocks are on my watchlist and well off their 52 week highs. Select gold and silver companies are also beaten down and could provide great opportunities right now. 

Try to block out all the financial pornography out there and instead just watch what the market is doing and make your own opportunities. If you trade in and out of stocks based on what some TV guru is saying you will never know when to sell to make money.

My Final Take

You only make money when you sell a stock. Sell you must, that's the easy part. Your stocks will go up one day and down the next.This is how the market works, Don't get discouraged but also NEVER hang on to losing positions too long. Invest in something else. Just try and hit some singles instead of home runs. They add up over time.

Always keep a watchlist of certain stocks that are moving up after suffering a setback we talked about earlier. I will try to update and publish a list of stocks on my list. Once a stock starts moving down, just drop it from the list if volume and price start moving against you.

I also look at the technical chart to see if the stock is also breaking out on high volume.

This is just what I do to generate some extra capital gains and hopefully minimize losses. What do you do?

Related Post: Risk-Take Some What Have You Got to Lose

Recommended Reading: 

Investing in Food Stocks - What Should You Buy?

I haven't owned any food stocks or companies that make money from selling food in a long time.

In the past I've owned Metro, MTY Food Group, The Keg, Pizza Pizza, A&W Royalties, Restaurant Brands and Empire.

I find the whole sector so dependent on so many outside factors that they have no control over their own businesses.

Grocery stores have a very hard time keeping up with food deflation. Their costs go up but to stay competitive they have to constantly meet consumer demand for sales. It's just crazy how cheap some food items really are.

This makes these companies tough investments. I don't see any growth in the grocery store business so I don't put any money to work there anymore.

Fast Food or Quick Service

This can be an area for growth but wholly dependent on a consumer with lots of free cash flow. What do you know as an investor about the fast food industry? Where does everyone go to eat? You might have your favourite but is it a good  investment? You like the food but is it a good business?

I'm a food court guy when I'm out so if I was to re-enter this space it would be with MTY. This is a major player on mostly all the food kiosks you see at the mall. They provide such a variety of choices with 5,469 locations. That's massive. 

The stock closed today at $48.48 still well off it's 52 week high of $56.60. That's almost a 20% discount for you. To me it's cheap and also pays a small 1.2% dividend. Also a low p/e of 11.

Burgers, Pizza and Doughnuts

Pizza Pizza pays a 7% dividend but the stock has also lost 30% in the last 12 months. You are not keeping up with the payments. Are people getting sick of pizza?  I don't know but money here seems wasted. No growth and the dividend is too high which spells danger to me.

A&W has fared a little better but do you believe people are going to be eating more burgers in the future? Who knows but I think the trend is for more healthier options. Pays a 5% dividend, only down 5% this year.

Restaurant Brands (QSR) is the parent company of Tim Hortons, Burger King and Popeye's. IOW they are red meat, chicken and deep fried bread. Is this a trend? They also treat their franchisees like shit. Stock is expensive pays a 3% dividend and is down almost 8% YTD. I sold my shares around this price a year ago.

You can pick your poison as far as food stocks go, the grocery business or fast casual. I know I'm lumping them all together to keep it simple but I'm just giving you what I've owned and what I think going forward. 

There are others I haven't mentioned but these are all stocks I've owned in the past. If I was to buy a grocery stock it would be Empire the home of Sobey's and for fast casual I would buy MTY. It is by far my favourite Canadian food stock and a great company to buy and hold for the long term in my opinion.

"I like to pick stocks that are price makers and NOT price takers" 

- David Baskin 

MTY is a price maker!

Related Post: Do Your Stocks Make Money?

Recommended Reading:

Does Yield on Cost Matter?

Yield on Cost is just a way of measuring the long term return of your stocks from increasing dividends. Chances are if you pick stocks that have consistently raised those dividends then you will have a winner. This is the essence of the dividend growth strategy and why yield on cost is a good indicator of future success.

YoC is not an indicator that the stock WILL continue to do well but what it has done in the past. Most of the general stock market returns come from dividends so why not invest in companies with a solid history of dividend increases?

If you measure your stock returns based on price alone then you are missing the big picture. You MUST count those dividends that have been sent into your account and grow your capital. If history repeats itself based on the company dividend record then you will receive a higher payment the next year and the year after that and the year after that.

Everytime you receive a dividend increase the return on your invested capital grows higher.

Compare this to bonds or bond ETFs. The interest payment doesn't rise month over month and your capital keeps eroding. This is what makes bonds the anti-investment to the dividend growth strategy. They are sold as a safe strategy and a parachute for your portfolio in bad times. How so? The income is stagnant and there is no growth. That's why they call this fixed income.

When you look at YoC you are looking at what the stock has done in the past and not a guarantee of what it will do in the future. So true, but what is wrong with that. That's what all investing disclaimers from investing professionals tell you. The past is no indicator of what our fund will do in the future. Yah, because we have to rely on your ability to pick the right stocks and pay for the privilege.

Let's look at how this works, from Google;

"To calculate yield on cost, divide the annual dividend by the per-share price you initially paid. ... The current dividend yield of the stock is $1 / $15 = 6.7%. But the yield on cost, i.e. the yield on your investment, is $1 / $10 = 10%. Now assume that XYZ boosts its divided to $1.50 per share."

From Investopedia;

To calculate yield on cost for a stock, an investor must divide the stock's annual dividend by the average cost basis per share and multiple the resulting number by 100 (to arrive at a percentage).

For example, an investor who purchased 100 shares of Microsoft (MSFT) on January 3rd, 2018 at the opening bell of the market at $86.06 and another 100 shares at the open on Jan. 4, 2018, at $86.59, they would have an average cost basis of $86.33/share. If the annual dividend is $1.68 per share, the yield on cost would be 1.95% ($1.68/$86.33 * 100).

The Future

This is unknown of course. In my future I will converting my RRSP into a RRIF. I currently  hold 11 dividend growth stocks, 1 US ETF and 1 Int'l ETF. I call this a core and explore portfolio. I don't have to use this RRIF for another 9 years until I have to make the minimum withdrawals. In the meantime I would hope to grow the capital and purchase more dividend paying growth stocks with the dividends I will be receiving.

I have no desire to hold bonds of any kind because I believe investing in government debt is a losing proposition. I know this from watching the holdings in my wife's portfolio go down pretty much year after year. There is NO bull market in bonds.

I find once I calculate my YoC for any stock I hold that I am less likely to sell it. If you are only focused on the current price and the current yield you only have the short term in mind and that's NOT long term investing. 

DG investors only win by playing the long game. In the short term nothing much happens.
I believe and use YoC to show me how a company has been treating it's shareholders. Has it raised it's dividend? How many years in a row? What is it's unbroken record on rising dividends?

When making a decision whether to buy the company based on this information, just ask yourself;

"Is this a good company to invest in for the long-term?"

Related Post: Why a Growing Yield Matters

Recommended Reading:

The 6-Pack Portfolio - Book Review

TITLE: The 6-Pack Portfolio
AUTHOR NAME: Jason Fremlin
AUTHOR CREDENTIALS: DIY Stock Investor, MBA
GENRE: Stock Investing
NUMBER OF PAGES: 108
PUBLICATION DATE: 25 March 2018

SYNOPSIS/SUMMARY: It is Easy to Beat The Canadian Stock Market

From Amazon: "The Toronto Stock Exchange (TSX) Composite is a bad index. So how do you make money in the Canadian market? In this book, Jason Fremlin unveils the 6-Pack Portfolio, which has beat the TSX Index every year since inception. The 6-Pack has beat the TSX by an astounding 8% annually despite having lower risk"

At only 108 pages this is a quick and fun read for anyone starting out their investing journey and looking for beginner stock investing ideas. I wouldn't say the return is astounding but mere hyberbole. This premise has been proposed before to describe an investing strategy. Jason has just given it a fresh new label attaching a common Canadian beer phrase to it and calling it his own.
Most people I know own more than 6 stocks. - PW

Jason's Investment Theory

Pick 6 stocks and invest them in equal weight from the banking, telecom, utility, real estate, pipeline and railroad industry. You pick the stocks just ensure you use equal dollar amounts for each stock. 

Use your TFSA for this strategy as he claims this is the most tax efficient place for the 6-Pack Portfolio. Once implemented just sit back and watch the dividends roll in. Other reasons Jason gives for this particular strategy include;

• the TSX is poorly diversified, so you must hold concentrated positions 
• ETFs dominate investor psychology
• the focus is on stocks that work best in Canada
• higher dividend yield than the broader index
• replace Canadian ETFs with individual stocks

What About The Rest of the World?

You should complement the 6-Pack Portfolio with a US broad based ETF like VTI. Due to the fact that the Canadian Market is far too concentrated in financials and materials Jason believes exposure to the FANG and healthcare stocks the US offers is a perfect combination for a TFSA portfolio. Use an Int'l ETF for the rest of the world.

Pros and Cons

Pros

• easy to implement
• only 6 stocks to choose
• low cost with only one time trading fees
• highly concentrated
• uses the TFSA for tax efficiency
• recommends diversification into the US market via ETFs

The main advantages here are buy six Canadian stocks and one US ETF and one Int'l ETF. Pretty straight forward and simple.

Ross Grant over at the Canadian Moneysaver publishes a list of 10 stocks every January that he also claims to 'Beat the TSX'. Also coined the 'Dogs of the TSE'. The BTSX strategy was instituted by David Stanley who BEAT the index in 19 out of 27 years. The idea is to pick out the top ten highest yielding stocks from a screen of the worst performers from the previous year. You purchase them in equal dollar amounts. 

The 2018 Dogs list is comprised of; Enbridge, BCE, Power Corp, TransCanada, Shaw, CIBC, Scotiabank, National Bank, Bank of Montreal and Royal Bank. 

I use a variation of this strategy by adding any new additions that are recommended year over year. I do not sell any position that is dropped from the list. That way I still capture the dividend yield from the stock. I also supplement my portfolio with a US & Int'l ETF. 

Cons 

• small sample size of return data
• this has been proposed in numerous books, nothing new here
• gold is also recommended for diversification
• no discussion of other stock analyzing tools
• claim of this being for seasoned investors is baseless

Jason attempts to beat the index with just 6 stocks. I have seen no record of this so far, just an 8% claimed return since he instituted the strategy in 2010/11. The index lost 11% in 2011 and again in 2015. So what year did he start 2010 or 2011? The start month will skew the total return and it would be nice to know his year by year return. That is the only way to claim to 'beat' the index instead of claiming to do so on an accumulating basis.

I have no idea how the 6-Pack did during this time frame.

My Final Take

If you have ever read or subscribe to Tom Connolly's site dividendgrowth.ca then you will read nothing new here with this book.

Tom has been telling readers to concentrate their portfolios on just a few stocks from the telecomm, utilitiy, real estate and financial sectors for decades. Acronym = TURF or TULF. The big difference here is that NO commodity, pipelines or high yield stocks are ever covered or chosen as recommendations via statistics. Tom also does not offer analysis on individual stocks.

I think this book is more suited to newbie investors looking for confirmation and ideas to start a portfolio of individual Canadian stocks.

Jason needs to provide more than a return record of 7-8 years to convince me that this is the best way to construct a portfolio but I do believe it's a good way to start. It's just that you would be better served by first reading books by investing masters like Philip Fisher, Buffett, Montier, Grant, Munger, Bogle, Ellis and Jarislowsky who all have covered parts of this thesis before.

Tom Connolly has been investing this way since 1984 and boasts a portfolio size that has doubled and doubled again and he focuses on; 

Yield + Dividend Growth = Total Return. 

He also never buys ETFs or gold.  Jason's premise boils down to what's called a core and explore strategy. Also been recommended by many others before him. The choice is yours, pick your guru wisely.

How would you start to build a portfolio?

Related Post: Yield and Dividend Growth