We’re in a perfect storm of wealth building.
Here at InvestorPlace, we strive to make you a smarter investor by highlighting the trends and investing themes that can help make you rich.
The most fun we have is when several things come together and create a unique opportunity for our readers … when several of our principles combine to create a “perfect storm” for wealth building.
And we’ve got that going on right now.
Yesterday, my colleague Jeff Remsburg introduced Matt McCall’s “Jumper Stocks” anomaly.
This anomaly is, in part, how the marijuana company Cronos Group went from trading at $0.25 in July 2016 to $25.10 by January 2019. That’s a gain of more than 4,900% in less than three years.
This type of gain turns a $25k investment into more than $1.2M.
As a quick reminder, the idea is that as marijuana legalization continues and the plant is no longer scheduled as a controlled substance by the federal government, a unique opportunity will exist for marijuana companies to uplist – or “jump” – to the big exchanges such as the NYSE or NASDAQ.
It’s like being called up from the minor leagues to the major leagues – and a tremendous amount of money flows in its wake.
The pot stock jumpers Matt has identified combine some of our favorite wealth building themes:
- investing with tailwinds – marijuana
- finding the stocks no one else knows about – penny stocks
- getting in early – before they jump to a major exchange and explode in value
Circumstances don’t fall into place like that very often. So, when it happens, smart investors will want to take advantage.
Today, I want to describe why uplisting is can be so important for investors, and why jumper stocks provide a unique chance to rake in triple or quadruple digit gains.
I’ve received Matt’s permission to include parts of his Early Stage Investor issues that explain the benefits of uplisting, and how the criteria he uses to identify the winners can present investors who get in early.
What happens when a stock jumps to an exchange.
U.S law has made life difficult for marijuana stocks, but some U.S.-based ancillary companies have jumped to the major stock exchanges and the investors in those stocks have reaped the benefits.
One example that we’ve highlighted in the Digest is Innovative Industrial Properties (IIPR).
IIPR is a marijuana REIT that buys properties from medical marijuana growers that are already approved by their states. It then leases the property back to the growers. This arrangement gives the growers an infusion of cash, and IIPR gets regular rent payments under a long-term lease.
I’ll let Matt explain what happened next.
Because the company itself doesn’t touch marijuana, it is not breaking any federal laws. It went public on the NASDAQ in December 2016.
The stock is up over 250% since then and recently hit a new all-time high. For many Wall Street institutions and mutual funds, Innovative Industrial Properties was the only option to invest in a company that was profiting from the marijuana boom in the United States.
Not only is Innovative Industrial Properties a success story for marijuana companies that are able to list on a major stock exchange, it spotlights yet another huge opportunity. On February 14, the company announced it was chosen as the newest member of the S&P 600 Small-Cap Index.
We wrote about the jump to the S&P 600 in the Digest when it happened because it was such an important development. IIPR is the first marijuana-related company to be included in one of the most prestigious indices in the world.
And just as importantly, all ETFs and mutual funds that track the S&P 600 are now be required to buy the stock. As a result, Innovative Industrial Properties jumped 7% the day after the announcement and is up more than 38% overall.
That’s a stunning return. In less than 2 months, up more than 38%!
Let’s discuss the four big benefits of this kind of jump and why we believe it’s a major catalyst for marijuana stocks.
Here again is Matt’s explanation from Early Stage Investor.
Benefit #1: Big Money — Nearly every mutual fund, ETF, and big institutional investment advisor is prohibited from buying stocks that do not trade on the NYSE and NASDAQ. After making the move to a major exchange, the jumper stock is able to be purchased by the largest funds in the world.
There is about $19 trillion in mutual funds in the United States today… and another $3.6 trillion in ETFs. If the marijuana industry is able to eventually attract 0.1% (one-one thousandth) of all assets in the mutual fund and ETF industry, it would equal an inflow of $22.6 billion. Money from large institutional funds, pension funds, and the like will also add to the inflow of cash into marijuana stocks listed on the NYSE and NASDAQ.
Benefit #2: Analyst Coverage — With the inflow of money from large financial institutions comes the initiation of coverage by the big investment banks. One of the reasons I like investing in smaller, early-stage companies is that they are typically flying under Wall Street’s radar. The number of analysts that cover a stock is very low, and oftentimes there is not one firm that provides research on the stock.
This is the case with nearly all OTC stocks. There are a couple of firms that have created a business of covering smaller marijuana stocks, but it is nothing compared to a typical stock traded on the NYSE or NASDAQ. A byproduct of more analyst coverage is increased press. When a new investment firm initiates coverage of a stock, it will put out a press release. That leads to more media attention and competitors also launching coverage of the jumper stock, which in turn sparks more buyers.
Benefit #3: Instant Credibility — When a jumper stock begins trading on the same exchange as the biggest companies in the world, it obtains a certain clout. It has now joined the likes of Amazon and Apple – the big boys. This benefit is difficult to put into numbers, but the effect is clear. The Jumper Stock is now behind the red rope, rubbing elbows with the who’s who in business and making it more credible to investors.
Benefit #4: More Regulations — It is rare to hear me say that more regulations are a good thing, but the more stringent requirements to uplist to the NYSE and NASDAQ are a positive for Jumper Stocks. Investors of all sizes know that the stocks have met certain criteria, and that can give them more confidence in their investment.
For example, to list on the NYSE a company must have a valuation of at least $100 million, a minimum share price of $4, monthly trading volume of at least 100,000 shares, and 1.1 million shares that are publicly held. There are also financial minimums that must be met as well as corporate governance. Meeting those requirements provides a lot of validity to a business, so executives of an OTC company have plenty of incentive to reach them.
Now, let’s be clear, not every pot stock is going to get there.
It’s one thing to talk about the benefits of this kind of jump, but the trick is picking the winners.
Matt’s record picking pot stock winners is incredible. Several of his picks, including IIPR, have doubled in a matter of months. That’s why he is considered one of the leading marijuana stock analysts in the country.
But this new approach is different. Let me explain why.
Every successful system has a list of criteria to identify those with the best potential. The Jumper Stock System is no different.
Matt and his team have specifically developed this system to separate the best from the rest. There are three criteria that each possible recommendation must meet before it can be considered for the Jumper Stock portfolio.
A stock that possesses all of these components is one Matt bets will bring impressive rewards over the long term. Once again from Early Stage Investor…
Criteria #1: Volume — The volume trend is the most important aspect of the technical indicator. You can view this by analyzing average volume over the last 50 trading days. If the trend line is increasing, it indicates that more investors are trading the stock. The opposite is also true.
Even though most stocks with the potential to jump to a major exchange are flying under the radar, we must see increased interest over a period of time. So, to qualify for the Jumper Stock portfolio, volume must show a consistent increase over time.
Criteria #2: Size — The company’s market capitalization must be at least $250 million. We can calculate a stock’s market cap by multiplying the number of shares outstanding by the price per share. The resulting number is the value of the company. For example, when the media began calling Apple the first $1 trillion company last year, it wasn’t referring to the stock’s share price. The $1 trillion valuation was Apple’s market cap.
Each of the major U.S. stock exchanges has its own requirements as well. To jump to the NYSE, a company must have a minimum market cap of $100 million. The NASDAQ’s is $160 million. Most companies will wait until their valuations are above both minimum requirements before considering a jump.
The reason our size requirement is more stringent than the exchanges is because companies with market caps less than $250 million probably won’t be able to meet the other financial requirements of the two exchanges. So while a small company could certainly attempt to uplist once it has hit the minimum, it may not be successful in doing so for some time. My studies have shown that uplisting prior to hitting a $250 million valuation is rare. By keeping our requirement higher, it makes it much more likely that our Jumper Stocks will make the move within the next three to nine months.
Criteria #3: Sales — It is common for small stocks trading on the OTC to lose money. These companies are focused on growing their businesses, and that often entails investing in expansion. That’s why earnings are not a requirement of a potential Jumper Stock.
But while it is okay to see companies losing money investing in the early stages of the growth cycle, it is imperative that the company is still growing sales. The above-average spending that we typically see should be focused on increasing sales and scaling the business. A company that is investing in a business model that does not result in consistently increasing sales is failing.
This is another area where my years of experience in analyzing small-cap stocks that have jumped to major stock exchange comes into play. Our proprietary Jumper Stock System will help us determine whether the sales growth trend is strong enough to be considered for the portfolio.
Bonus Criteria: Intangibles — Leadership is an intangible asset of a company. It is hard to quantify, yet it is one of the most important factors behind a company’s success. And it’s even more important for our Jumper Stock System.
In order for a stock to join the “big leagues,” it must have management that can take the company to the next level. Great small companies are led by equally great leaders. But that doesn’t necessarily mean the executives have what it takes to lead a company that trades on a major U.S. stock exchange.
As you know, a key part of my research strategy is reaching out to management and digging into their abilities. Do they have past success stories? Do they think outside the box? Do they have the drive necessary to take the company to the next level? Exceptional leadership is an intangible that all successful Jumper Stocks must have.
Another intangible I look for is a strong underlying story. Every company has a story about how it got to where it is today. And every company also has stories about where it will be in the future. This second story is built around two things: company specifics and the overall investment trend it is trying to conquer.
I am a big believer in a top-down investment approach. That means I look for big long-term investment themes – or “mega-trends” – that have the ability to grow by at least 10X in the next decade. Marijuana is clearly one such theme. Within the marijuana industry are several sub-industries. They range from the growers of marijuana to the retailers to the brands to cannabidiol (CBD) and hemp to ancillary plays.
Before a stock is eligible for our portfolio, I analyze every aspect of the company’s business and story to make sure it has the kind of growth potential we are looking for in the years ahead. Jumper Stocks must have compelling past and future stories.
So when Matt recommends a jumper stock, he will walk through the criteria with his subscribers and explain why they make the grade.
You can see how Matt’s system can leverage this perfect storm of investing opportunity. It’s rare when so many conditions that can help grow your wealth line up so perfectly.
You can use Matt’s Jumper Stock System to get in to some great stocks before the masses – and especially before Wall Street.
Matt has prepared a special presentation explaining more of the details behind his system, and you can access it all here.
To a richer life…
Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com