Little Aussie winners…

  • Pot winners
  • An unethical b*stard?
  • More than weed
  • Bad to worse

Bloomberg says:

There’s a buzz in Australia’s stock market.

Shares of companies involved in the cultivation, production and research of medicinal marijuana have on average soared more than 130 percent in Sydney this year. That’s six times higher than their peers in the US and Canada. The surge was sparked by Australia easing restrictions on imports of cannabis to treat illnesses from epilepsy to cancer.

It’s no wonder there has been such a surge in interest in Sam Volkering’s recent research reports into the sector.

Sam is bullish on medicinal marijuana stocks, and he’s not the only one. More from Bloomberg:

“The market is excited by the potential upside it could bring,” said Niv Dagan, Melbourne-based executive director at Peak Asset Management. Dagan has a very small chunk of his more than A$100 million fund exposed to Australian pot stocks. “The key risk we see is obviously regulatory risk,” he said by phone.

You bet it is. It wouldn’t take much for the government to let the air out of the euphoria by indicating a harder line to legalisation.

But when it comes to speculation like this, you just have to weigh up the potential rewards with the potential gains.

This isn’t the market to invest your life savings. But it may be the market to stick a small part of your stock investments in an effort to bag a multi-digit-percentage gain.

That’s why Sam has been all over the sector. He’s calling it the ‘Marijuana Mania’. It is a mania, and we’re not convinced the mania will end anytime soon. Details here.

Markets

Overnight, the Dow Jones Industrial Average fell 4.72 points, or 0.02%.

The S&P 500 fell 2.49 points, for a 0.11% fall.

In Europe, the Euro Stoxx 50 gained 31.48 points, or 0.92%. Meanwhile, the FTSE 100 climbed 0.22%, and Germany’s DAX index added 1.14%.

In Asia, Japan’s Nikkei 225 index is up 162.16 points, or 0.85%. China’s CSI 300 is up 0.14%.

In Australia, the S&P/ASX 200 is up 45.05 points, or 0.79%.

On the commodities market, West Texas Intermediate crude oil is US$47.82 per barrel. Brent crude is US$50.66 per barrel.

Gold is trading for US$1,244.39 (AU$1,630.79) per troy ounce. Silver is US$17.57 (AU$23.03) per troy ounce.

The Aussie dollar is worth 76.3 US cents.

Pot winners

On the subject of ‘Marijuana Mania’, check out this year-to-date chart from Bloomberg.



chart image

Source: Bloomberg
Click to enlarge


The Aussie-listed cannabis sector is up nearly 140% this year. That significantly outpaces the 20% gain for the rest of the world’s cannabis stocks.

Of course, it’s fair to note that US cannabis stocks saw a terrific run in 2016 leading up to the November elections — when legalisation of marijuana was on the ballot in several states.

An unethical b*stard?

More from Bloomberg:

There are similarities to the dot-com boom where only a couple of Australian medicinal cannabis companies will become giants, John Athanasiou, chief executive officer of brokerage Red Leaf Securities told Bloomberg TV Friday.

However, Athanasiou went on to explain that the sector has a bright future:

What politician in their right mind will be that heartless to reverse this legislation which allows a child who’s suffering from multiple diseases not to use medical marijuana.

Politicians do crazy things all the time, so we wouldn’t put it past them.

To us, the legalisation of cannabis (or marijuana, if you prefer) is a no-brainer. For a start: What government thinks it should have the right to ban a naturally-occurring plant?

It just doesn’t make sense. It’s about as illogical as a government deciding to ban stinging nettles because they cause harm.

In fact, we’d probably go as far to say that, comparably, we’d much rather ‘suffer’ the effects of cannabis than we would stinging nettles…they hurt.

Not everyone agrees with our decision to advocate investing in this sector. Subscriber Rik writes:

This drug will effectively destroy millions of lives.

If you think for one moment making money out of this treachery is a good thing then you are as evil and un-ethical as the bastards who have sucked the public into thinking drugging a nation is a good thing by you condoning it for the sake of making a buck… Shame on you!

Two things…

There is the argument that supposedly ‘weak’ drugs like cannabis are just the thin end of the wedge.

That once someone tries one drug, it will lead them on to other, perhaps much more harmful, drugs.

That may or may not be true. However, writing from a position of zero knowledge on the matter, we would be more inclined to think that those who end up seeking ‘harder’ drugs do so for other reasons.

It’s not that their partaking in cannabis consumption has ‘warmed them up’ to the idea of harder drug addiction; it’s that other events in their lives contribute to it.

That could be mental, financial, personal, physical, or any of a thousand other reasons why someone seeks the thrill of a harder drug.

For this reason, we don’t buy that theory.

As for being unethical…it’s an interesting point. However, we’re not certain that, from an investment perspective, it’s our role to consider ethics.

As financial advisers, it’s our role to give what we believe is the best financial advice. And, as we don’t handle money or execute trades for people, you, as an individual investor, can do as you please with the advice we give.

If you didn’t like our company’s recommendations relating to coal seam gas or shale gas plays from 2008 through to 2014, you didn’t have to follow them.

You would have missed big gains, but that’s fine. There are plenty of investments out there.

That’s the great thing. You get to choose. It’s not the same as when you own a managed fund, and then, one day, you find out it owns a stack of tobacco stocks or munitions companies.

You have to decide whether to stick with the fund, or go through the rigmarole of researching and finding a new fund.

Or, if the fund manager decides to get out of ‘unethical’ investments, there’s the cost this involves. Perhaps the selling pressure will result in them selling stocks at a lower price.

Not to mention the transaction costs. And what if the new ‘ethical’ investments don’t perform as well as the sold ‘unethical’ investments?

If you don’t have the choice to make that decision, naturally, it’s out of your hands. You’re just left with the consequences — and those consequences may not always be to your benefit.

That’s especially so if your concern is having enough money saved for retirement, rather than worrying about whether companies choose to profit from people who make the free choice to smoke or gamble.

Anyway, that’s our take on the matter. As an investor and adviser, we just look for the best investment ideas. Right now, we figure one of the best speculative investment ideas is in the cannabis industry, hence our special report.

More than weed

In fairness to Sam, the gradual legalisation of the cannabis industry isn’t the only thing on his mind.

In fact, it probably doesn’t occupy more than 5% of his brainpower at the moment.

Sam’s other beat is checking out the hottest trends in tech. It’s taken him from Melbourne to Paris, to Amsterdam, to Las Vegas, to Singapore, and Dubai…all in the search of the latest tech trends.

If you’ve got the tech bug too, and you’re after opportunities to make a pretty penny (or dollar) from that sector, check out Sam’s work.

You can find it right here.

Bad to worse

A big slump in the Downer EDI Ltd [ASX:DOW] share price today.

Earlier this week, the company announced the $1.2 billion takeover of Spotless Group Holdings Ltd [ASX:SPO]. In order to fund the takeover, Downer EDI needed to raise capital from the market at $5.95 per share.

Unfortunately for the company, the institutional placement only raised 66% of the funds. That left a big shortfall.

As a consequence, the share price has taken a beating today. It’s down nearly $1.50 as we write — a drop of nearly 21% over yesterday’s closing price.

It makes you wonder sometimes about the usefulness and desirability of takeovers. Perhaps even the desperateness of takeovers.

Downer’s revenues have slipped in recent years. No doubt in part due to the mining-industry slump. Even so, the company has continued to make a fairly reasonable profit.

We’re not talking big margins here — just below 3%. Yet it’s a profit nonetheless. But then, for whatever reason, the company decides to take over Spotless.

Spotless is a company with equally moribund revenue growth, and a worse record on the profitability front. And, for its efforts, Downer will be taking on Spotless’ big debt pile too.

It just makes us wonder: Investors who bought Downer shares over the past few months above $6.50 must surely be wondering quite how the Spotless takeover will add value to their shares…and now they’re also looking at a share price that stands at $5.55 and wondering how long it will take them to break even.

From what we can see, the Downer takeover of Spotless is starting to look like a case study in how to make a bad situation even worse.

We wish shareholders good luck.

In the mailbag

Subscriber Sonia writes:

Does PPP ever recommend any short trades or are they always long trades?

Yes.

Two of our premium investment advisories include short-selling as part of their service: Currency Wars Trader and Quant Trader.

The former relies on big picture, macroeconomic thinking in order to generate trades (plus some charting analysis). The latter is a ‘black box’ system that uses complex algorithms to spot potentially high-probability trades.

In addition, with the way the markets are at the moment, I believe they are ripe for an investigative, forensic-analysis short-selling service.

The type of service that takes the approach we did in yesterday’s Port Phillip Insider to rip apart the Quintis Ltd [ASX:QIN] business model — or to tear open the ‘all-spin’ Tesla Inc. [NASDAQ:TSLA] business model — and declare that it’s a perfect short sell.

I’d like to do it myself. But in truth, what with running a publishing business, and writing Port Phillip Insider four days per week, I’m not sure I can set aside the time required for such a venture.

Anyway, I’ll put the feelers out to see if there’s anyone we can bring on board to run such a service. In our view, there’s definitely a need for it.

Cheers,
Kris