36 Reasons Why Today Could Be Marijuana’s Biggest Day in Weeks

Legal cannabis is off to a roaring start in Canada, of course, but the next flood of big-gain potential will come to us courtesy of folks south of the border.

That’s because today, voters in Colorado, Michigan, North Dakota, Utah, Missouri, Ohio, and Wisconsin will head to the polls to vote on no less than 36 major cannabis reform ballot measures.

Now, any one of these could catalyze tremendous pot-stock gains virtually overnight because, as we’ve seen time and again since 2014, “when laws pass, stocks soar.”

But I’m most excited about the biggest of them…

Change Is in the Cards Across the Country

In Ohio, voters in six cities – Dayton is the biggest one – are deciding on whether to decriminalize cannabis. If passed, these initiatives would reduce the penalty for misdemeanor marijuana offenses to the lowest penalties allowed by law.

And in Wisconsin, voters in several counties are deciding whether to legalize medical marijuana. Other counties are voting on full adult legalization.

In Colorado, one of the nation’s most important “adult use” markets, voters are deciding on an amendment that would redefine industrial hemp so it aligns with the federal definition. If it passes, Colorado farmers would be at a huge advantage – and continue to lead the country’s hemp industry. Right now, Colorado produces half of the hemp in the United States.

In Utah and Missouri, citizens will be voting on whether to legalize medical marijuana. Both these states sport deep red, profoundly anti-marijuana electorates, so these two, specifically, are monumental votes, testing exactly how mainstream legal cannabis has become.

And finally, Michigan and North Dakota voters will be deciding on adult-use recreational marijuana. The proposed laws would not only legalize the sale of certain amounts of marijuana, but also change how law enforcement prosecutes marijuana drug infractions. In some cases, the violations would be changed from criminal to civil; in others, marijuana convicts’ records would be expunged entirely.

Six of the seven states will also be voting on taxes and other legal cannabis regulations. For example, Michigan and North Dakota are looking to enact marijuana laws and taxes that would mimic those of alcohol sales.

So what does this mean for the states that are looking to legalize? Fortunately, we have a pretty good example to look at as a jumping-off point.

The Centennial State Gives Us a Road Map

When Colorado legalized marijuana, it raked in $70 million in tax revenue annually. Michigan’s population is twice the size of Colorado’s 5 million residents. So, if it follows a similar tax plan, Michigan is, in theory, looking at as much as $140 million in annual tax revenue if its ballot initiative passes.

North Dakota is also looking to go fully legal, but its population is much smaller than Colorado’s. It’s home to just 750,000 people, but even that many could generate up to $10 million in tax revenue per year.

Wisconsin, meanwhile, has roughly the same population as Colorado. So it could generate just as much tax revenue through cannabis tourism, medical marijuana, and recreational legalization.

And these numbers just reflect the beginning. Today, Colorado nets about $247 million – a 250% increase from since it went fully legal – in taxes and other fees.

If even a few of these states pass laws, they’re looking at a massive influx of cash… and that’s just in taxes, which go right to the state to help improve things like infrastructure, roads, and schools.

And these election results also will bolster the bottom line of the best cannabis firms – the sort we talk about here all the time.

That will, in turn, lead to higher share prices.

Because, again, “when laws pass, stocks soar,” and we’re looking at as many as 36 passing by the time polls close tonight.

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Source: Money Morning 

Is Aurora Cannabis the Best Pot Stock to Buy Now?

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

Source: Shutterstock

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

3 Pot Stocks to Consider on the Dip

Source: Shutterstock

It took pot stocks just a few weeks in August and September to become the hottest investments on Wall Street. Likewise, it has taken just a few weeks in October to make them some of the coldest investments.

In August and September, pot stocks went crazy. Almost all of them rallied by more than 50%. Some doubled. Some tripled. One rose by more 1,000%. The fundamental backdrop was that pot stocks were gearing up for their biggest catalyst yet — the legalization of cannabis in Canada on Oct. 17. Everyone wanted exposure to weed prior to that catalyst.

But, as was largely expected, the legalization of weed throughout Canada became a “sell the news” event. It has been a bumpy roll-out characterized by supply shortages and consumers turning to the black market. Pot stocks, which were priced for a perfect roll out, have dropped into bear market territory as the roll out has been far from perfect.

Indeed, most pot stocks are well into bear market territory now. As of this writing, most widely followed pot stocks are down more than 30% from recent highs.

But, the long-term growth narrative remains positive. Cannabis is becoming increasingly legal on a worldwide basis, and consumer trends indicate that once legal, recreational pot could be as widely consumed as alcoholic beverages. Throw in the medical applications of cannabis, and you are talking about a market that promises to be huge.

So, is it time to buy the dip in pot stocks?

Maybe. Because the momentum is gone and the focus is back on fundamentals, you should only buy into pot stocks when the valuation makes sense. For some of these names, the valuation is starting to make sense. For others, not so much.

With that in mind, here’s a list of three pot stocks investors should be watching during this selloff.

Canopy Growth (CGC)

pot stocks Canopy Growth (CGC)

Source: Shutterstock

Time and time again, I’ve claimed the best investment in the cannabis sector is Canopy Growth(NYSE:CGC).

Due to its early market leadership, distinguished track record, biggest production capacity, widest portfolio of brands and billion dollar partnership with alcoholic beverage giant Constellation Brands (NYSE:STZ), CGC stock is head-and-shoulders above other pot stocks when it comes to investment attractiveness. But, that didn’t make CGC stock immune to broad cannabis sector weakness. As I warned in mid-October, all pot stocks — CGC included — are due for weakness in the near term.

Fast forward a week. CGC stock has dropped more than 30% since then. Time to buy the dip?

I think so. There may be more weakness ahead as the Canadian cannabis roll out continues to be bumpy. But, CGC stock is now nearing levels it was at just after the STZ investment. Those levels seem fundamentally supported by STZ’s $4 billion investment, and as such, I don’t see the market sending CGC stock below the low $30’s any time soon.

Meanwhile, reasonably optimistic growth assumptions point to healthy long-term upside for CGC stock.

As such, now looks like a good time to start gradually buying the dip in CGC stock.

Tilray (TLRY)

pot stocks Tilray (TLRY)

Source: Shutterstock

Just as I’ve reiterated time and time again that Canopy Growth was the best investment in the cannabis sector, I have also warned time and time again that Tilray (NSDSAQ:TLRY) is the most overvalued.

Despite having lower sales than CGC, a less distinguished track record, smaller production capacity, a more narrow portfolio of brands and no billion dollar partnership, TLRY stock has been rewarded in the stock market with a bigger valuation than CGC stock. This discrepancy doesn’t make sense, and it’s why TLRY stock fell the hardest during this recent correction. Over the past few weeks, TLRY stock is down more than 35%. It’s also more than 50% off September highs.

Unfortunately, this valuation disconnect still hasn’t fixed itself. As of this writing, Canopy has a market cap of $7.5 billion. Tilray has a market cap of over $9 billion. That relative valuation disconnect shouldn’t exist, and so long as it does, Tilray stock will struggle.

As such, I don’t think this recent dip in TLRY is worth buying. The company has healthy long-term growth drivers. But, at a $9 billion-plus valuation with smaller market share than peers, all that growth is already priced in, and then some. With momentum now favoring the bears, investors can afford to wait for TLRY stock to come down further before speculating on long-term upside.

Cronos (CRON)

pot stocks Cronos (CRON)

Source: Shutterstock

Next to Canopy, my second-favorite pot stock is Cronos (NASDAQ:CRON). But, even though I’ve favored this name over peers, I also warned in mid-October that buying then was dangerous.

Since then, CRON stock has come down about 30% to levels not seen since shortly after the big Constellation Brands investment into Canopy. That is a big wipe-out in a short amount of time. And, it has left CRON stock undervalued.

Cronos has a market cap of just $1.3 billion, versus $5 billion-plus market caps at Tilray and Canopy. A big reason for the lower valuation is lower production capacity. CRON has planned production capacity of roughly 1.2 million square feet, versus 3.8 million square feet for TLRY and 5.6 million for CGC.

But, each square foot of Cronos production capacity is being undervalued relative to Tilray and Canopy’s. The market cap per square foot of planned production is about $2,350 at TLRY and $1,350 at CGC. At CRON, it is just $1,100.

That doesn’t make much sense, especially considering Cronos is projecting yield of 110,000 kilograms of cannabis on those 1.2 million square feet. That equates to almost 100 grams of weed per square foot, which is a very attractive yield.

As such, once pot stocks stabilize from recent volatility, CRON stock could be a buy. I still think CGC stock is the best in class, but CRON stock offers relative valuation upside that is quite attractive.

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Volatility Will Normalize and Here’s How To Profit When It Happens

Market volatility has essentially become a mainstream metric in the investment realm – especially for anyone who does any short-term trading. Most traders are now aware of what the VIX is and how a higher level in the volatility index usually means more uncertainty in the market.

While investors and traders may not be able to explain what the VIX actually is (the implied volatility of S&P 500 options), they do realize it’s important to keep an eye on market volatility. Generally speaking, higher volatility levels can precede a selloff in stocks. Conversely, a falling VIX may give us an “all clear” signal during more tumultuous times.

Options traders should be more intimately familiar with the concept of volatility. Since volatility is the key component in the calculation of options prices, it is vital for active options traders to have at a least a basic understanding of how it works.

One thing I’ve noticed while speaking at the MoneyShow and Traders Expo investment conferences is that traders appear to have a growing interest and understanding of volatility. It’s definitely an encouraging trend. The more options traders (and stock traders for that matter) understand about volatility and how it impacts the market, the better chance they have of avoiding catastrophic losses.

But here’s the thing…

Volatility doesn’t just tell you when to get out of your long positions. It can also be a great signal for when to get back in the stock market. For example, if the VIX is headed lower after a turbulent period in stocks, it could mean that investors aren’t hedging as much because the feel the uncertainty is coming to an end.

When volatility spikes, I like to look at the options action on volatility ETPs (exchange traded products) such as iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX). VXX is a widely popular ETN used to trade short-term volatility. VXX will go down when front-month VIX futures (the VIX itself is not tradable) move down. Thus, it’s an easy way to bet on volatility going down (without having to trade futures).

What’s more, bearish options action in VXX could be a sign that traders expect volatility to come down in the near future. For instance, I recently came across a bear call spread – a call spread sold for a credit – which predicts that VXX isn’t going to keep climbing prior to mid-November.

More specifically, with VXX right around $40, a trader sold 6,500 November 16th 45-60 call spreads for $1.21 credit per spread. That means the trader sold the 45 call and bought the 60 call at the same time. The strategy reaches max profit as long as VXX is under $45 by expiration.

If VXX stays below $45, the trader could pocket $786,000 dollars. However above $46.21 (the breakeven point) the call spread seller could lose $650,000 per dollar higher – all the way to $60. In other words, this could be a very risky strategy.

The strategist who placed this trade clearly believes VXX isn’t going much higher in the next two weeks and more likely, is headed lower. Keep in mind, once mid-term elections and the FOMC meeting are over with in the first full week of November, there may not be much action heading into the Thanksgiving holiday. That is to say, I think this trade makes a lot of sense.

Nevertheless, selling potentially risky call spreads is not a strategy I recommend for most options traders. In fact, I believe it’s far easier to simply buy a put spread on VXX instead.

If you think volatility is going to drop after the mid-term elections/FOMC meeting, buying the 37-34 put spread (buying the 37 put, selling the 34 put) can be done for about $1.20 with VXX at $39. That’s a reasonable price to pay given how quickly volatility can move (up or down). Moreover, the trade can max out at 150% gains if VXX drops to $34 or below by expiration.

 

Market Preview: Markets Rise and Fall on Trade Comments

Markets traded Friday as if the White House and its inhabitants were engaged in the children’s game of telephone. Pre-market reports from Bloomberg that President Trump had directed White House staff to draw up a trade agreement with China saw DJIA futures sprint over 300 points to the plus side. After a CNBC reporter played part of his interview with White House Economic Advisor Larry Kudlow, stating a deal was not in the works but could happen at some point, futures fell quickly to up only 200 points. The release of the jobless number, which came in at a red hot 250,000, buoyed the futures market until investors realized the numbers gave the Fed more ammo to raise rates. Markets opened positive and then sold off as Apple (AAPL) earnings weighed especially heavy on tech. But, late in the afternoon markets rallied to pare losses as President Trump said a trade deal with China was closer. Investors can take one lesson from market movements on the first Friday of November, volatility appears to be here to stay for the foreseeable future.

Monday analysts will parse earnings from Occidental Petroleum (OXY), Marriott (MAR) and Sysco (SYY). Oil continued to slide Friday, but an Exxon Mobil (XOM) earnings beat kept the stock in positive territory. Investors will be anxious to see whether Occidental can match the good news out of Exxon and halt the damage in the stock inflicted over the past few weeks. Marriott beat and raised earnings estimates for the year last quarter, but currency headwinds may be taking a toll on the company as 2018 has marched on. Analysts will be looking for continued strong growth in the Starwood brand, which Marriott acquired in 2016.

In addition to earnings, economic numbers released on Monday will include PMI services data and the ISM non-manufacturing index. The ISM index came in at 61.6 for September. Any number above 50 indicates growth in the index components which include services, construction, and mining among others. Tuesday investors will see the release of weekly Redbook retail numbers as well as the Labor Department’s job openings data. Wednesday begins a two day Federal Open Market Committee meeting, but no action on rates is expected from the Fed until December. Even so, the Fed statement to be released Thursday afternoon may rattle markets. Wednesday morning mortgage application numbers will be released followed by jobless claims on Thursday. Friday we’ll digest the Producer Price Index for October, which is expected to rise .2%. Also released Friday will be consumer sentiment and wholesale trade numbers.

As we are in the heart of earnings season, several large names report next week. Tuesday Eli Lilly (LLY) and CVS Health Corp. (CVS) are scheduled to report. Wednesday Qualcomm (QCOM), Twenty-First Century Fox (FOXA) and Prudential Financial (PRU) will all release earnings. Qualcomm was recently downgraded by BofA citing a lack of opportunity to cut costs and softening smartphone demand. Disney (DIS), Astrazeneca (AZN) and Activision Blizzard (ATVI) release numbers on Thursday. Call of Duty 4, recently released by Activision, has broken sales records for the franchise, but the stock was not spared in the recent market selloff. GNC Holdings (GNC) and Potbelly (PBPB) close out the week with earnings on Friday.    

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5 Stocks to Sell In November Amid Elections and Earnings

Source: Shutterstock

During October, the stock market created many stocks to sell amid a significant decline. At the peak of the plunge in stock prices, all three major indexes fell into correction territory. Despite the volatility, the month ended with two days of triple-digit gains for the Dow Jones Industrial Average.

Although November will begin on a high note, earnings news coming from many key stocks will likely define the market. The midterm elections on November 6th will also loom over the market. Continued Republican control over both houses of Congress would likely lead to few changes.

However, most political analysts predict a Democratic takeover of the House, with fivethirtyeight.com placing the odds at 85.2% as of this writing. Such an occurrence would likely curtail much of President Trump’s agenda and lead to uncertainty as gridlock again takes over Washington.

Whatever happens with earnings or the political makeup of Washington, these equities could become stocks to sell in November:

General Electric Company (GE)

Yet another shoe dropped when GE reported earnings in late October. In the first quarterly report for new CEO Larry Culp, the company cut the quarterly dividend again, this time to one penny per share. The company also missed estimates on earnings and revenue. The firm also announced it would split its power business in two. GE also revealed that the SEC will expand the scope of its investigation on the conglomerate’s accounting practices.It has become difficult to overstate the reputational damage that GE (NYSE:GE) has sustained in recent years. Analysts will likely argue for years whether the poor management of Jeff Immelt or the ability to come clean during the brief tenure of John Flannery caused more damage to GE stock.

Typically, such revelations might inspire a buying opportunity. However, with GE’s recent history, investors have rightly lost trust that more disclosures will not be forthcoming. Coming clean will further hurt GE stock in the short term. Also, even if Mr. Culp turns GE around, I expect more revelations will come soon. I see such a process as necessary to save GE stock in the long term. However, until the company begins to recover its reputation, investors should keep GE on their stocks to sell list.

Lockheed Martin Corporation (LMT)

LMT stock fell by 17% during the swoon in October, signaling that industry observers have begun to price in a Democratic takeover. This places its P/E ratio at just under 17. That valuation looks reasonable. Admittedly, if the Republicans managed to hold the House, investors should remove LMT stock from their stocks to sell list.As the nation’s largest defense contractor, Lockheed Martin (NYSE:LMT) has seen its stock bolstered by an Administration bent on increasing defense spending. So far, that has worked to LMT’s favor. However, the Democrats who appear likely to take over the House have traditionally looked on defense spending less favorably. With the House controlling the government’s purse strings, that will likely place LMT among the stocks to sell.

However, this also came after a forecast 155.2% increase in profits for the year. While analysts predict growth will slow to 11.5% per year, they do forecast average annual profit growth of 51.8% per year over the next five years. If Democrats cut defense spending, that forecast could come down, or even turn into a forecast profit reduction.

Despite these sentiments, the world seems to become more dangerous. For this reason, I still like LMT stock long term. However, with a Democratic takeover of the House likely, uncertainty will probably hamper LMT’s growth for the foreseeable future.

Netflix, Inc. (NFLX)

Netflix (NASDAQ:NFLX) stock has long defied the odds and the naysayers, increasing by almost 40 fold in the last six years. Its leadership in the streaming industry and aggressive move into content have made the company one of the most influential companies in both Silicon Valley and Hollywood. As such, investors drove NFLX stock higher despite valuation metrics.

However, the October selloff may have placed NFLX on many stocks to sell lists for some time to come. The stock has fallen by more than 29% since June. It also declined by almost 20% in October alone. Despite this drop, it trades at a P/E ratio of about 113. Analysts forecast average annual profit growth of 61.8% per year for the next five years. With that, it can easily still maintain a P/E well above the S&P 500 average.

Still, one has to wonder if the heyday of NFLX stock has come to an end. Amazon(NASDAQ:AMZN) has improved its content on its Prime service. Worse, Disney (NYSE:DIS) plans to take its content from Netflix and move it to its own service. Such trends bode poorly for the company.

I expect Netflix to retain its influence in Hollywood and continue to grow at a rapid pace. However, with the challenges it faces on the content front, I do not see NFLX stock maintaining a triple-digit valuation.

Square, Inc. (SQ)

During October, Square (NYSE:SQ) became another high-flying tech stock that saw a massive selloff. Since hitting a high of $101.15 per share in late September, SQ found itself as one of the stocks to sell, and it lost about 27% of its value.

Square succeeded in carving out a niche that the mega-cap tech companies could not supplant. With this niche and a growth rate expected to average 54.8% per year over the next five years, investors have bid up the price of SQ stock. Now, it trades at a P/E ratio of almost 165.

While the stock price has recovered some, one has to wonder if SQ stock can hold the momentum it enjoyed in the recent past. Earnings will come out on November 7th. At that point, investors will find out whether the company can push its stock higher, or if valuations will continue to fall.

Square enabled anyone who owns a smartphone to accept credit card payments. In a society becoming increasingly cashless, this has added tremendous value. With its innovations, I think Square will continue its growth levels for years to come. I also believe it will meet or exceed estimates in its upcoming quarterly report. However, at 165 times earnings, the odds of the report inspiring another sustained move higher do not favor the longs.

Starbucks Corporation (SBUX)

Starbucks (NASDAQ:SBUX) achieve something unusual in October — it went up in value. While indexes flirted with bear market territory, SBUX stock saw a steady increase.

The company will announce its quarterly earnings on November 1st. However, I do not see earnings and revenue numbers as the most critical part of the report. With Starbucks having reached a saturation point in its home country, the focus has turned to China. As of now, the company still open a new store an average of once every 15 hours.

Still, the looming trade war remains a dark cloud over all things China. With no signs of a resolution, most stocks with a large presence in China have sold off. Moreover, companies such as Amazon and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) have long found themselves blocked out of a market in favor of a homegrown alternative. If the same thing were to happen to Starbucks, SBUX stock would face severe, long-term damage. China makes up about 3,400 stores of its current store count of over 28,200.

It also accounts for the bulk of the company’s growth. The predicted 14.6% annual profit growth rate over the next five years could disappear in such a scenario. And at a P/E ratio of over 24, the company supports above average multiples. Given its situation in China, I see substantial risk and little reward for buying SBUX stock at these levels.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


 

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2 Dividends Over 10% That Are Actually Worth Buying

When it comes to dividends, any stock yielding more than 10% these days needs to be taken with a grain of salt. That’s because bigger isn’t usually better when you’re talking about dividend yields.

Any income investment can be priced relative to government interest rates, currently between 2% and 3%, depending on how much extra risk you’re willing to take on. Historically-speaking, any time a stock is paying more than seven percentage points above the AAA-rated, government-secured debt, investors begin to worry if the dividend could be cut.

However, following the 7% loss suffered by the S&P 500 in October, more stocks are sporting a double-digit yield that at any other point in 2018. With that in mind, I’ve highlighted two dividends above 10% that appear secure enough to buy, following the recent market decline.

Worthwhile 10%+ Yielder No. 1: Demand and Dividend Rising

Alliance Resource Partners (ARLP) is a coal limited partnership that is the largest operator in the Illinois Basin, where the product naturally burns cleaner for the amount of energy that’s created.

The stock offers investors a rare opportunity. The company pays a quarterly distribution $0.525 a share (10.8% dividend yield) that management has actually boosted the payout six straight quarters.

Any commodity business boils down to supply and demand and Alliance Resource is currently in the catbird seat. Management is planning to set increase production by 8% this year and another 6% to 10% in 2019, to keep up with higher coal demand outside of the U.S.

The company earned $0.55 a share in the third quarter, which covered the dividend, aided by higher coal demand. Management has also been buying back shares, but history shows the supply/demand balance is delicate in all commodity markets and can quickly reverse.

Worthwhile 10%+ Yielder No. 2: Savvy Investor Leveraged to Rising Rates

New Mountain Finance (NMFC) is a business development company (BDC) that invests primarily in technology, healthcare and other non-cyclical industries.  The company pays a steady quarterly dividend of $0.34 a share (10.2% yield) that management has covered every quarter with net investment income (NII) since going public in 2011.

In addition, New Mountain is leveraged to benefit from rising interest rates. 86% of the company’s debt investments are floating-rate and the majority of its debt financing is at fixed rates. As a result, management estimates that annual NII will grow by $0.10 a share, for every 100 basis-point rate increase.

Like a lot of BDC’s, New Mountain will soon increase its maximum capital leverage to 2:1, thanks to favorable government regulations. This coupled with the company’s exposure to rising interest rates, has led to a consensus profit expectation for 6% average annual earnings growth over the next three years.

It’s also worth noting that chief operating officer John Kline bought 17,250 shares of New Mountain on the open market back in September. There are several reasons why company insiders may sell shares, but they usually only buy when they believe the business is headed in the right direction.

The sharp market selloff in October has created some potential buying opportunities, but chasing double-digit yields remains a risky business. A stable dividend yield of 10% is nice, but there are far more landmines than potential winners in this space.

The good news is: there’s a better way. There are better bargains to be had, for secure 7% to 8% yields with upside potential and monthly payouts to boot.

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Source: Contrarian Outlook

Market Preview: Facebook Earnings Power Market Higher, Earnings from Apple and Starbucks On Tap

Facebook (FB) earnings, combined with assurances from CEO Mark Zuckerberg that margins would stop shrinking in 2019, soothed investor angst Wednesday and made Halloween not so spooky for the markets. The social media giant, which crushed earnings estimates, but missed slightly on revenue, said plans to further monetize Instagram and Messenger are in the works. The fact that the company missed on revenue, but placed enough stock in Zuckerberg’s plans that the company rose over 4% Wednesday, could mark a major change in tone for the markets. Investors were grasping for any news that would stop the tech slide, and Facebook appears to have stepped into the breach for now. Stepping away from tech, General Motors (GM) did its part Wednesday to bolster the market rally. The company earned $1.87 per share when analysts had expected $1.25. GM noted that tariffs and rising commodity costs are hurting numbers, but said strength in all of its market segments was sufficient to offset those costs. The stock was up over 9% by the close.

Investors hope Apple (AAPL) continues to fuel the market bounce when it reports earnings after the bell Thursday. Analysts have been raising earnings expectations for Apple the past few months, believing the company is selling fewer phones but at a higher price point. Investors will be looking for an update on the impact of the trade war. Also reporting Thursday are DowDuPont (DWDP) and Starbucks (SBUX). Analysts will be looking for the impact of rising commodity prices on the chemical maker’s earnings. While Starbucks investors will be looking for a reversal of the declining foot traffic the company has encountered. Comp sales were up just 1% last quarter.

Thursday’s economic calendar includes weekly jobless claims, Q3 productivity numbers, unit labor costs, the ISM Manufacturing Index, and construction spending. Productivity is expected to rise 2.3%, a slight decline from last quarter. Labor costs are expected to rise 1.1% after a 1% decline the previous quarter. The first Friday of November will usher in nonfarm payroll numbers and the unemployment rate. Unemployment is expected to remain unchanged at 3.7% with nonfarm payroll numbers clocking in at just over 200k. Also on tap for Friday are average hourly earnings, trade deficit numbers and factory orders. The trade deficit is expected to remain almost unchanged at $53.6B.

Friday the markets will focus on energy when Exxon Mobil (XOM), Chevron (CVX) and Duke Energy (DUK) all report earnings. With oil now down around 15% from highs set early in October,analysts will be looking for forecasts from these companies as to when they believe the decline will end. As a defensive stock, Duke Energy has performed well during the market selloff and is up just over 5% the past month. Also reporting Friday are Alibaba (BABA), Seagate Technology (STX) and Newell Brands (NWL).  

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