The marijuana stocks have been smoking hot in 2018. Some of the wildest trades of the year happened in Tilray (NASDA:TLRY) for example. This is a sector that exploded on to the market and has immediately amassed a die-hard fan base. But trading pot stocks has not been for the faint of heart. These are momentum stocks and they move even faster than Amazon (Nasdaq:AMZN) and Netflix (NASDAQ:NFLX). Aurora Cannabis (NYSE:ACB) is no different. ACB stock as seen several moves over 50% in either direction. So it’s never going to give investors an easy point of entries or exits.
For decades, pot was taboo, so it has never was a topic of conversation on Wall Street. But now that legalization of marijuana is becoming more ubiquitous, the concept of commercializing its uses is a valid thesis. There are several companies that have attracted mainstream investments like Constellation Brands (NYSE:STZ) did with Canopy Growth (NYSE:CGC). They invested $4 billion dollars so they can tap into the market.
Canada has been at the forefront of this movement. Some states in the U.S. have also been there but the big one would be at the federal level. Until that happens the risk in those stocks is still high. Therefore, I would only consider investing in ACB as a speculative thesis within a conservative portfolio.
From an evaluation perspective, the company sells at an 82 price-earnings ratio, which is almost Amazon territory. But unlike Amazon, its future is not as set in stone yet. But therein lies the opportunity.
This Canadian-based company is a legitimate competitor in the field. They are well diversified within it and already are in 20 countries. So it’s a matter of time as the legalization expands before they grow into their potential.
There’s not much expert opinion out on these companies, and in any case, I don’t think there are too many experts yet as the field is still too young for Wall Street to entirely grasp. So it’s a matter of picking a few of the potential winners and holding them for the long term.
In lieu of picking winners, one can invest in an ETF like the ETFMG Alternative Harvest ETF (NYSEARCA:MJ). But sometimes a targeted investment in one company or two is perhaps a smarter decision than a blunderbuss approach.
Technically, ACB stock failed at $12 per share but has so far found hard support around $4.5 dollars per share. This is a wide range of short-term pricing. However, the bulk of the action has been around $7 per share with supports the concept that somewhere in the middle of two extremes lies the truth.
When committing to a long-term thesis, I don’t worry about pennies in order to snipe the perfect entry point. I learned long ago that I don’t aim to pick the very best point of entry in momentum stocks. As long as my thesis is correct over the long-term the goal will come.
So if the marijuana trade is a viable one, and if ACB stock market does not crash in the mid-term, Aurora Cannabis stock should be higher in 2019. For now, investors will have to contend with the headline threats that loom.
We have a tariff war between the U.S. and China, we also have a U.S. Fed that’s in a tightening phase, which could hamper equity investments into 2019. But still, the macroeconomic environment looks conducive for more upside.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.