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Cannabis. There was a big shut down yesterday of some of the cannabis culture shops across the country. This may be laying the groundwork for legislation, which most people are anticipating will be proposed and tabled around April. He has always felt legislation would be tabled in 2017, and probably early on, and will probably take the better part of a year to get approved, and will take about a year after approval before being implemented.
In the automotive supply business, and focused on LED lighting. A lot of their product goes into the Ford F150 and other Ford products. Announced a couple of quarters ago that they were working with Tesla. Manufacturers are looking for ways to make vehicles lighter, and this is one of those ways. There is massive competition, and this is such a small company that its flies under the radar. It allows them to be really adaptive and to change. He continues to like this. Looking at their numbers, they always grow year-over-year, but not necessarily quarter over quarter. The last 2 quarters have been a little slower than what the market expected, so the stock sold off. This is a great opportunity.
Doesn’t think they will need to do an equity raise unless they do a big acquisition. They roughly have the cash flow they need to make an acquisition each quarter, of about the same size that they have been doing. His one caution is that the valuation is very high. Be prepared that an analyst could come out and say it is fully valued, resulting in the stock pulling back. If it did, it would probably be a great buying opportunity. Also, if they did an equity offering, that would be another great time to add to your holdings.
Just got their banking license which allows them to expand and deal more with the chartered banks on currency exchange. That is where their big business is. It has taken a little longer for it to get integrated into the growth mode, so you are seeing a little fatigue by investors, who waited for a long time for the license to come through. Their retail business is not their main focus or the driver. You just need to be patient.
Unless you have a really long term time horizon, you want to be pretty active in trading this. It tends to be volatile. It is probably currently at a time where you could Buy for the next trade up. There are going to be a lot of catalysts this year. It seemed to sell off hard late last year and early this year, and has bottomed and starting to move up. There will be a ton of news flow on this company. They are going to need to raise more money. Probably fully funded out until later this year or early next year, but at that point, they may have a drug approval, a royalty deal, etc., which might not necessarily come from an equity issue. They have a number of different irons in the fire and there are 3 or 4 that could be global blockbuster drugs. There is lots of opportunity long term, so you want to watch it, manage your position size, and trade around that.
This dropped $3.25-$3.50 today. There was a report claiming employees were pressured to hit sales goals that could have breached the company’s ethics. Barclays says that they don’t think there will be repercussions. Any time these types of allegations come out, it certainly freezes investors in their tracks. This bank is a fantastic franchise. They have lots of compliance and corporate governance in place. If you are a 3-5 year investor, and you get a selloff like this, it is probably an opportunity. However, he wouldn’t add a full position today, but would probably add some today and look at adding some down the road.
The whole sector has sold off all this year. Feels this one has been punished because of the overall sector selling off, as opposed to anything they may be doing. The company is really well run. They’ve done a great job in a number of different areas. They aren’t buying a lot of land, but seem to be able to continue to drill and find good opportunities on their own properties. Because of that, their development and finding costs are really low, especially compared to a lot of other companies. The company has a really strong hedging policy, and hedge about 50% of their production. If you are a longer-term investor, this is probably one of the best, well-run gas companies in Canada.
Just reported earnings and the stock had a pretty dramatic selloff, especially based on the numbers. This has transitioned in that they’ve had higher revenue and earnings numbers, as well as higher margins. Feels the market got a little disappointed in the growth rate, but the company has actually said that it is going to be November before the transition from Riviera beds to Chartwell beds ends. The big catalyst to watch is the debt refinancing. They’ve stated they are 80% along with a major Canadian bank. That will be a huge savings for them. He added to his holdings on the last selloff.
Feels the volatility has to do with the trading and lack of liquidity. This name flies under the radar of a lot of institutions. It doesn’t trade a ton of stocks, and if an institution wants to get in or out, the stock tends to get moved around. The latest numbers were probably a little weaker than what the Street expected, but the sentiment was so negative before that. Longer-term, it is an interesting business. Seafood and protein demand, specifically for Asia, continue to increase. It is close to a monopoly in as far as the fishing licenses are concerned. This is one that you Buy when everyone hates it, and Sell when everyone loves it.
A difficult one to figure out. There are a couple of reasons why this is not moving. With the exception of recent news, the sector really hasn’t had a lot of interest and most investors have backed away from it. Also, being a smaller company, also hurts it. It looks like some of the acquisitions were a little bigger than they expected, as far as the amount of work needed to turn it around. He suspects they will end up with a quarter that will exceed expectations, and the stock will take an immediate jump, and if it gets a 2nd quarter where numbers are trending in the right direction, the numbers will be back to where analysts/portfolio managers think they should be.
Short the stock on the basis of marijuana prices dropping? The pricing of marijuana in Colorado has been dropping like a rock, something like 10% a month in the 1st year. The average selling price now is about $7.50 a gram, and there is going to be some pressure on that, especially as the market matures. Right now, demand is still outstripping supply. As companies raise money and bring up production, that probably changes. However, the end market is hard to quantify at this time. As far as Shorting goes, you can certainly make money on it, but you have to be tactful. When things go crazy and straight up, that is the time to put Shorts on. Also, when there is a lot of equity financing, that is probably another time.
Market. From an economic standpoint everything is looking quite strong. He looks at a number of different indicators, such as short, intermediate and long-term. The intermediate and long-term look fantastic. Short term looks like it could be a little extended. Sentiment is seen as pushed to an extreme, certainly on the retail side and on the fund manager side. As well, valuation is up there, so he wouldn’t be surprised if we saw a little bit of chop and volatility. That would represent a pretty good opportunity to get into the market or add to your favourite positions of the selloff.