3 Pot Stocks that Stand Out in the Crowd

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Pot stocks are as hot in 2018 as bitcoin was in 2017.

Advocates insist, however, that marijuana will not suffer the same fate because there is a real market to be served — and a real product to sell. Canadian legalization alone is expected to result in sales of $5-7 billion next year, and many U.S. states are looking enviously at Colorado, the first state to legalize recreational marijuana.

Thus, valuations in the cannabis sector are extremely high, and they have recently been correcting.

The Canadian market officially opens Wednesday, so speculation and excitement over pot stocks are at a fever pitch. It’s not just about smoking. Edibles, oils and the possibility of pharmaceuticals are also driving money into the market.

And in this still very speculative space, every pot stock has to have a gimmick, which lets it stand out and convinces investors that it’s less risky than those other marijuana stocks. This gimmick could be a corporate investment, it could be technology or it could be raw distribution power waiting for the U.S. market to open up.

Here are 3 pot stocks with less risk.

Canopy Growth (CGC)

Source: Shutterstock

What makes Canopy Growth (NASDAQ:CGC) stand out among pot stocks is the $4 billion Constellation Brands (NYSE:STZ) put into the company a few months ago.

Constellation is one of the largest — and smartest — liquor companies in the world, having begun as a small New York wine producer and grown into a giant with beer brands such as Modelo and liquor brands such as Svedka vodka.

Constellation is a legitimate player, with $7.5 billion in revenue, a dividend of nearly $3 per year, and a market cap of $42.66 billion. Their willingness to put a big portion of that into Canopy, for a 38% stake, put the whole sector into overdrive.

CGC stock’s $11.46 billion market cap, however, is built on sales of $77 million in 2017, $48 million for the first six months of 2018, and a lot of hype. On October 15, Canopy paid about $330 million to acquire the assets of Ebbu, a hemp research company in Colorado.

Cronos Group (CRON)

Drug Company Partnerships Set Cronos Stock Apart, but Not Enough

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What sets Cronos Group (NASDAQ:CRON) apart — besides its partnerships with pharmaceutical companies like Gingko Bioworks, which wants to produce cannabinoids through fermentation — is the fact that it was the first pot company to list on the Nasdaq. Also, since listing in Canada in 2016, CRON’s value has grown 6,500%.

CRON’s valuation is not built on sales, however. Cronos reported revenue of just over $4 million in 2017, and about $6 million for the first six months of 2018. The balance sheet showed just $5.3 million in debt in June, against $9.2 million in cash, and operating cash flow was approaching balance.

By pushing the idea of marijuana as a pharmaceutical, and as a raw material from which drugs can be extracted, Cronos hopes to enter the U.S. market with products before mass legalization, and thus gain scale it can use to grow into the market as it matures.

Of five analysts following the stock, two currently have it on their buy lists.

MedMen (MMNFF)

Wait for the Next Big Correction to Jump on Canopy Growth Stock

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MedMen Enterprises (OTCMKTS:MMNFF), based in Culver City, CA, makes no pretense to being anything than what it is: a marijuana dispensary. It’s not a Canadian company, and it’s not a pharmaceutical company. It sells pot to medical marijuana patients who need it and recreational users — in locations where recreational use is legal.

The goal of MedMen is to gain distribution in the medical pot business that will let it expand into the recreational side as it develops. It has dispensaries in 4 U.S. states, including high-profile locations like Manhattan and Las Vegas.

MedMen went public in May but the stock didn’t see much action until last week. MedMen announced an acquisition of PharmaCann for a reported $682 million in stock. Buying medical will add licensed dispensaries in other states, mainly in the Midwest, to its network, giving it a total of 79 cannabis facilities in 12 states.

The deal sent MMNFF stock rocketing. Since the announcement, the stock is up 51%. While other pot stocks have been falling lately, MedMen is powering ahead.

CEO Adam Bierman said that the acquisition makes MedMen “the largest U.S. cannabis company in the world’s largest cannabis market” — and that sounds like a good place to be in as more U.S. states move toward full legalization.

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Your Post-Crash Action Plan for 600% Dividend Growth

If you’re wondering what to do in this panicky market, I’ve got a few “get rich quick” words for you: buy cheap, high-quality dividend growers with both hands.

I know that’s easy to say, but overcoming fear is vital, because history proves it’s the path to serious wealth. I can show you why in 2 charts. Here’s the first one:

A Snapshot of Terror

This is the CBOE’s S&P 500 Volatility Index, which captures panic in a picture, spiking when the market tanks and dozing off when markets gently rise. When you overlay the VIX with the market’s ups and downs, a can’t-miss pattern emerges: folks who “bought terror” have ridden every dip to big gains!

When Fear Is High, Buy the Dip

Be greedy when others are fearful? You bet!

(I’ll have 3 perfect buys for you—with one of these rate-friendly stocks boasting 600% dividend growth in the last 5 years—in a moment.)

But wait, is this time different? After all, stocks-at-large do seem pricey. I wouldn’t dive into an S&P index fund today (trading at a rich 24-times earnings) just because the VIX spiked.

And no matter how many times President Trump says the Fed has “gone crazy,” interest rates will keep rising. A December hike is baked in, according to futures markets, and 3 more increases are likely next year:


Source: CME Group

So what do we buy now?

I’ll answer that in 3 words: dividend-growth stocks. But not just any old dividend growers.

We Need Dividends That “Outrun” the 10-Year

We want stocks whose dividends are growing faster than the yield on the 10-year Treasury note.

Because why would you sit in “dead money” Treasuries when you can grab a dividend that’s doubling every 5 years (or, better yet, rising 600%!)?

And (for once) Wall Street (kind of) agrees with me.

Just last week, the suits at Jefferies Group said the following:

“Ultimately, companies with either high FCF (free cash flow) yield, net cash and/or positive earnings revisions will be able to live with long-term rates. Companies simply offering a dividend with no growth will fare poorly, in our view[italics mine].”

Translation: stocks with rising payouts and heaps of cash won’t even notice a slight rise in borrowing costs.

The Proof   

Here’s the truth: if you’d jumped on cash-rich stocks with fast-growing dividends 3 years ago, when this rate-hike cycle started, you’d have demolished the market.

Consider the case of Boeing (BA), which I pounded the table on in December 2015—the same month the Fed started nudging rates higher.

The reasons?

  • Free cash flow was soaring—at the time, the company’s FCF yield was 8.4%. In other words, in just a year, BA was throwing off nearly 10% of its market value in FCF!
  • The dividend was accelerating, having doubled in the previous 5 years, with each year’s hike eclipsing the last.

The result? Boeing shredded rising rates and handed us a massive 206% total return in 2 years!

3 Dividend Growers to Crush Rising Rates

But enough about past wins. Let’s dive into the 3 “next Boeings” I have for you now:

  • Apple (AAPL)
  • Broadcom Inc. (AVGO)
  • Marathon Petroleum (MPC)

We’ll start by stacking them up by free cash flow yield, one of the yardsticks Jefferies talked up last week.

3 Cash Machines

As you can see, all 3 are generating at least 5% of their market value in FCF, with Marathon clocking in at 10%. Those are terrific numbers. And the FCF backstopping them is soaring.

Cash Flow on the Rise…

Best of all, our 3 buys are raining cash on investors as fast-growing dividends:

… Driving Dividends Through the Roof

Now let’s take a closer look at each and see what’s driving these gains, starting with Broadcom (AVGO), whose cash flow has exploded 1,430% in the last 5 years.

Rising-Rate Buy No. 1: A Post-Selloff Tech Play

The chipmaker says it plans to give 50% of its prior-year FCF to shareholders as dividends, and it’s close to that target, sending out $2.7 billion in the last 12 months.

That, plus the fact that it pays out a low 36% of FCF as dividends are dead giveaways that a big hike is on the way this December, building on the unbelievable 600% in increases Broadcom has handed out in the last 5 years.

And there’s another way Broadcom rewards investors that few people consider: soaring R&D spending, which translates straight into a higher share price.

R&D Drives “Lockstep” Gains

Finally, Broadcom’s soaring cash flow has the stock trading at just 13.7-times FCF, way down from 22-times five years ago.

That’s ridiculous for a cash machine like this, and any further pullback—especially on overdone fears that its $19-billion purchase of CA Technologies will face a national-security review—makes it even more appealing.

Because even if Broadcom were to lose out on CA, it would just dump more cash into R&D, driving the stock higher still.

Rising-Rate Buy No. 2: Apple’s Ignored Shift

Jefferies also named Apple (AAPL) as a great buy when rates rise, and I agree.

For one, you can see the same connection between R&D and the stock price as at Broadcom:

R&D Keeps Apple Healthy

And thanks to its soaring FCF and legendary cash hoard, Tim Cook’s company can keep this tango up for decadeswithout breaking a sweat.

No wonder the dividend has jumped 92% since Apple started its payout in 2012, making the company’s tiny 1.7% current yield go down a lot easier.

To be sure, the stock isn’t as cheap as it has been, at 19-times FCF, but when it comes to Apple, swing traders need not apply. The key is to hang in as the company evolves into more of a service provider and less of a device maker.

Consider this: in Apple’s latest quarter, sales of high-margin services like Apple Music subscriptions, apps and streaming video spiked 31%, making services easily the company’s fastest-growing business.

That’s literally changing the face of Apple. In Q3, services were 18% of total sales, nearly doubling their 10% share in the same quarter just 5 years ago.

So now’s the time to climb aboard as more investors catch the hint. The “locked-in” dividend hikes make the deal even sweeter.

Rising-Rate Buy No. 3: A Dividend Doubler With a Buyback Kick

When most folks think of Marathon Petroleum (MPC), they think of refining.

And the company does own 16 refineries, making it America’s biggest refiner. But it also has 3,900 company owned gas stations and 7,800 branded stations. Marathon also has stakes in MLPX LP (MPLX) and Andeavor Logistics LP (ANDX), giving it access to 15,000+ miles of pipelines, as well as shipping terminals and processing facilities.


Source: Marathon Barclays CEO Energy-Power Conference Presentation, Sept. 4-6, 2018

A diversified energy play like this is exactly what you want when rates rise.

Check out how MPC has taken off since the Fed’s “kickoff” in December 2015, and really caught fire as rate hikes accelerated in the last year and a half:

Your Shelter From Rising Rates

Here’s another safety valve: management is jumping on MPC’s cheap valuation (9.8-times FCF) to boost share buybacks. That throws a cushion under the stock because it boosts per-share earnings—and share prices with them.


Source: Marathon Barclays CEO Energy-Power Conference Presentation, Sept. 4-6, 2018

The thing to keep in mind is that these moves have come on top of MPC’s 2.2% dividend, which, as I showed you above, has more than doubled in the last 5 years.

And like our 2 other rising-rate plays, MPC can easily keep up the pace. On top of its soaring FCF (remember that huge 10% FCF yield I showed you earlier?), it boasts $5 billion in cash. Put another way, when you add its cash on hand to its last 12 months of cash flow, you get an incredible 25% of market cap!

Throw in a low 20% of FCF paid as dividends and the fact that MPC sometimes announces more than one dividend hike a year and you can only draw one conclusion: now is the time to buy—before the next dividend is announced in late October.

Revealed: Apple’s “Secret” 10.2% Dividend

What if I told you I’d found a way to take a big-name stock like Apple, with a paper-thin 1.7% current dividend and turn it into a massive 10.2% cash stream?

Payouts like that mean up to $10,200 a year in dividends on a $100k investment. That’s 6 TIMES what you’d get from Apple’s “normal” payout!

I urge you to take a second and think about what this could mean to you: incredible double-digit cash dividends right now—straight from the stocks you know well.

It’s that simple: no risky options, dangerous derivatives or short selling.

Simply buy the stocks you love, straight from your online brokerage account. But instead of their paltry sub-2% dividends, you’ll get their “secret” payouts of 7.5%, 8% and even 10.2%!

The “Perfect Investment”

In know that sounds crazy, but I assure you it’s 100% real.

It’s all thanks to an unsung group of investments I call “dividend conversion machines”—so named because they “convert” pathetic S&P 500 dividends into gigantic cash payouts.

They’re the closest thing I’ve ever seen to the perfect investment!

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PLUS, we’ve got these 4 powerful investments pegged for massive price upside, too. I’m talking 20%+ gains, on top of those massive dividend payouts.

So to go back to that 10.2% payer I mentioned earlier, you’d be set for $20,000 in gains, plus your $10,200 in dividends, just 12 months out from now.

A $30,200 windfall!

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!

Source: Contrarian Outlook