Is Aurora Cannabis the Best Pot Stock to Buy Now?

You Can Do so Much Better in the Pot Sector Than CRON Stock

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There’s no sugar coating it: Cannabis stocks have had a tough ride in the second half of October. Collectively, the group was hammered as the overall markets took a hit. Surprisingly though, many cannabis names held up fairly well — Aurora Cannabis (NYSE:ACB) included.

That’s as recreational marijuana became legal in Canada in mid-October. Several stocks broke out just ahead of the event, only to reverse lower and join the major selling theme of the market. It set up as one great sell-the-news event, something we weren’t surprised about when we looked at Canopy Growth (NYSE:CGC) earlier in the month.

With many cannabis stocks making major moves lower, it no doubt brought some investors back to the table. They want to know, is it time to buy cannabis stocks, and specifically, is ACB stock a good one to buy?

Valuing Aurora Cannabis Stock

The company’s growth is actually pretty solid, with ACB stock racking up $55 million in sales for fiscal 2018, which ended on June 30. That was a tripling from the prior year’s $18 million in sales.

While that’s great from a sales perspective, I worry about cost control in getting to that point. For instance, cost of goods sold (COGS) increased nearly 6-fold, from $2 million to $11.7 million. SG&A expenses swelled from $17 million to $72 million and total operating expenses increased from $27.7 million to $135.3 million.

Because of “other income” on the income statement, it skews net income to the positive side, implying the company earned almost $72 million last year. On the surface, that looks like 46% net profit margins, but that’s not the case by any means. So investors need to be aware of that before they take these surface numbers at face value.

Between 2017 and 2018, total debt went from $63 million to over $200 million while total cash went the opposite direction, from $159 million to $89 million. However, current assets of $219.7 million do trump current liabilities by quite a bit, with the latter standing at $75.1 million.

So where does that leave us? With ACB stock commanding $6.7 billion market cap, it’s not cheap. Coca-Cola (NYSE:KO) has said it’s out as a buyer or partner to the industry right now, but could PepsiCo (NYSE:PEP) be into cannabis? How about other alcohol giants like Boston Beer(NYSE:SAM), Molson Coors (NYSE:TAP) and others, the way Constellation Brands(NYSE:STZtook a massive stake in Canopy Growth?

For me, Canopy is the “surest” bet in the business and that’s why if I had to bet on one, it would be with them. But that doesn’t mean others can’t buy or take stakes in ABC, Tilray(NASDAQ:TLRY) and others.

Trading the ACB Stock Price

chart of ACBFF stock
Click to Enlarge

Even before the legalization pop in mid-October and even after the bounce from sub-$6 a few days ago, ACB stock is still down from early October. So where does that leave us?

Since it’s bumping into the underside of the 100-day and 200-day moving average, now may not be the best time to go long Aurora Cannabis if you are bullish. However, I would feel more comfortable stepping into this name in the mid-$5 range.

From there, the risk-reward is much, much better. First, there’s the backside of downtrend resistance (blue line), which has been significant over the past year. There’s also uptrend support (purple line) and a notable level of support between $5.50 and $5.75. Losing all three levels would be a sign that investors need to bail on their long position. Above all three major moving averages and the $10 mark is back in sight.

Thus, there is attractive risk/reward between $5.50 and $6.

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Market Preview: Markets Relatively Calm with Tech Still Under Pressure, Earnings from Eli Lilly and CVS

While tech, especially Apple (AAPL), continued to weigh on the Nasdaq Monday, the S&P 500 and DJIA attempted to repair some of the damage done in recent weeks by putting in slow, steady gains. The S&P ended up just over a half percent and the DJIA closed up .76%. News that Warren Buffett had increased Berkshire Hathaway purchases, both of its own stock as well as its other holdings, helped buoy the market. Announcements of insider buying at IBM and GE also helped soothe investor nerves. This, combined with better than expected non-manufacturing ISM numbers to start the first full week of November off on a mixed note. A lack of negative news on the tariff front did not hurt either, as hope begins to bloom that some positive progress will emerge out of a possible meeting between Trump and Xi at a G20 meeting later this month. Tuesday investors will head to the polls, but voting should have little impact on the markets until results are in for the Wednesday session.

Tomorrow earnings will roll in from Eli Lilly (LLY) and CVS Health Corp. (CVS). Eli Lilly CEO David Ricks has the company in restructuring mode, and thus far in 2018 investors have been pleased with his progress. The stock is up 26% so far this year, and analysts will be looking for the cost cutting and restructuring to continue. CVS earnings are expected to rise 14% on a sales increase of only 2%. CVS will be expected to give an update on its acquisition of Aetna (AET), which has been approved but has yet to close. Analysts would like an update on any additional synergies the company has identified as it works toward the closing.

The Tuesday economic calendar includes Redbook retail numbers as well as Labor Department job openings numbers. Job openings are expected to hold steady, but the number of people willing to quit their jobs, which can be an indicator of inflation, is expected to nudge higher. Tuesday is also mid-term election day with a number of high profile elections taking place across the country. With many races still too close to call, a change in control of Congress is still on the table, and may impact Wednesday’s trading. Wednesday kicks off a two day Fed meeting and also brings the release of mortgage application data Wednesday morning.

Qualcomm (QCOM), Prudential Financial (PRU) and Monster Beverage (MNST) all report earnings on Wednesday. Qualcomm earnings are expected to fall around 10% as the company is negatively impacted by its continuing dispute with Apple (AAPL). Qualcomm has accused Apple of sharing trade secrets with Intel (INTC) in the ongoing dispute between the two companies. Increasing the product offering base is expected to positively impact the bottom line at Prudential this quarter. The company is expected to report $3.14 per share, increasing earnings a little over 4%. The ability to bring in higher fees in its Annuities and Investment Management division is also expected to be a positive driver of revenue.     

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Buy These 3 High-Yield REITs Raising Dividends in December

We are almost at the end of another year, and I hope your dividend income stream has marched steadily higher throughout 2018.

Tracking your dividend income and managing your portfolio to grow that income makes it easier to go through market corrections like we saw in October.

One bit of assistance I like to provide is to list those real estate investment trusts (REITs) that should announce higher dividend rates in the upcoming months. This knowledge can give you a jump on the rest of investing public, which will be surprised when the positive news is actually announced.

I maintain a database of about 130 REITs. With it I track current yields, dividend growth rates and when these companies usually announced new dividend rates. Most REITs announce a new dividend rate once a year, and then pay that rate for the next four quarters.

Currently about 85 REITs in my database have recent and ongoing histories of dividend growth. Out of that group, higher dividend announcements will happen during almost every month of the year. In the face of market volatility, REIT values have held up reasonably well in 2018.

Related: Buy This 8.4% REIT That’s Raised Dividends Every Quarter

Dividend increases are the best defense against higher market interest rates. Higher dividend announcements may be the catalyst to higher share prices for individual REIT shares.

My list shows several companies that historically announce higher dividends in December and should do so again this year. Investors will start earning the higher payouts in the new year.

Remember, you want to buy shares before the dividend announcement to get the benefit of a share price bump caused by the positive news event.

Here is the list of REITs to consider:

Ventas, Inc. (NYSE: VTR) is a large-cap REIT that owns a portfolio of properties leased by companies providing the full range of healthcare services. Ventas has done very well for investors, growing its dividend at a compounding 8% annual rate since 2001.

For the last three years, revenue and cash flow growth has been a challenge across all healthcare REITs. Ventas has sold some assets and used the proceeds to pay down debt. As a result, the company’s balance sheet is stronger, but normalized FFO per share for the first three quarters of 2018 were down 5% compared to the same period in 2017.

Ventas increased the dividend by 2% last year and has sufficient cash flow coverage to announce a similar increase this year.

The next dividend will be declared on about December 10, with a mid-month ex-dividend date and payment at the end of the year.

VTR yields 5.4%.

CubeSmart (NYSE: CUBE) is a mid-cap sized self-storage properties REIT. This has been a fast growth REIT, with the dividend growing by 158% over the last five years.

Growth in the self-storage space has moderated, but this means a decline to high single digit annual growth from the previous double digit per year rates.

Last year the dividend was increased by 11%, right in the middle of my 10% to 12% forecast. This year I expect the dividend go be raised by 5% to 6%.

The new dividend rate will be announced in mid- December. The stock will go ex-dividend at the end of December with payment in mid-January.

CUBE yields 4.1%.

CoreSite Realty Corp (NYSE: COR) is a data center REIT. Data centers are one of, if not the fastest growing REIT subsector. Over the last year the company increased its dividend by 14%.

Free cash flow out which dividends are paid has grown by 13.6% over the last year.

Over the last couple of years CoreSite has been announcing a higher dividend every other quarter. The last increase two quarters ago increased the payment to investors by 5.1%. Another rate bump of 5% to 8% is due.

The next dividend increase should be announced in early December, with ex-dividend at the end of the month and the dividend will be paid in mid-January.

COR yields 4.4%.

Bonus Recommendation: Douglas Emmett, Inc. (NYSE: DEI) is a regionally focused REIT, owning and operating office and multi-family properties in California and Hawaii. The has a strong focus on developing new properties or redeveloping currently owned properties for higher, better use – and rents.

The DEI dividend has been increased every year since 2011. Last year the payout was increased by 8.7%. The five-year compound dividend growth rate is 9.7%.

The current dividend is just 50% of FFO, with cash flow per share growing by about 5% per year.

I forecast another 8% dividend increase to be announced on about December 8. Ex-dividend will be at the end of December and the payment will be in mid-January.

DEI yields 2.8%.

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Source: Investors Alley