Cannabis: Under-the-Radar COVID-19 Stocks

My daughter moved into her first apartment earlier this month, and she attended her first junior-year classes at Tulane yesterday. Tomorrow I move my son into his University of Maryland dorm. Bittersweet? You know it. These college years are literally some of the best of anyone’s life. They should be lived with a certain reckless abandon, saying yes to parties, road trips, Terps football games, New Orleans festivals…

My kids won’t get to just say “yes” to anything without thinking about how they can stay safe for themselves, their classmates, and their family. And still, what are the odds of a big outbreak that shuts down their campuses? Seems high to me. And I tell you: If my daughter has to suffer another shutdown like last year, where she had to turn tail and bolt out of New Orleans, well, she won’t be happy about it.

So, as excited as I am for them as they move on down their roads, I am sad for the restraint that COVID-19 is putting on them. And I worry.

After all, I’m their parent. By greenlighting their attendance, I am putting them at risk. And while I know that the risk of the really bad COVID-19 effects are pretty low for people their age, those risks aren’t zero.  

It may not really be fair to compare my responsibility to my kids to the responsibilities I have as an analyst who recommends stocks to readers, but I’m doing it anyway because the feelings are similar. People pay real money to subscribe to my services. And they put their hard-earned money at risk in the stock market on my recommendations. And frankly, right now, this market is about as risky as any I’ve seen over the last couple decades.

Risk Versus Reward

At this point, the risk isn’t so much about the immediate impact that COVID-19 is having on the global economy. In many ways, investors have done amazing assessing and anticipating how this would all play out so far. After March’s “holy shit” sell-off, investors quickly figured out that COVID-19 was likely to accelerate trends that were already in place. Of course, I’m talking about tech/cloud/online stuff. 

Reward is always higher when risk is always elevated. And it’s pretty easy to see that anyone with exposure to these tech/cloud stocks has been handsomely rewarded. And I have to say that in my flagship newsletter, The Wealth Advisory, we’ve been focused on these trends for a couple years now. So the risk we took was simply staying exposed to stocks like Chewy (NYSE: CHWY), Teladoc (NYSE: TDOC), Twilio (NYSE: TWLO), and Spotify (NYSE: SPOT). We have been handsomely rewarded.  

Of course, in addition to our own insights, we owe a tip of the cap to the Fed pumping in trillions to support the stock market. It is no coincidence that the stock started rolling as the Fed announced the steps it would take. You can argue about whether the Fed is screwing the pooch here all you want. But just about 50% of Americans are exposed to the stock market in some way. Maybe it’s direct ownership, maybe it’s 401(k)/IRA retirement savings. You wanna help Americans hang on to their standard of living, you could do worse than putting a floor under stock prices. 

Now, this isn’t to say that the Fed has mitigated all risk to the U.S. economy — far from it. Roughly 10% of the 30 million Americans who have lost their jobs will not get them back. Once again, trends toward automation in leisure/hospitality/entertainment sectors are being pulled forward. Like, would you stay in a hotel these days? Not a chance, right? Well, Airbnb is putting up record numbers. Would you sit in a movie theater? Netflix and Disney+ are killing it. Disney+ numbers especially are helping offset theme park losses. The launch timing for that service couldn’t have been much better. 

Let me ask you: Did you see Walmart and Target earnings numbers these last couple of days? Holy moly: crushed — especially Target. Sure, there’s absolutely pent-up demand getting released as the U.S. economy opens. Still, rumors of the demise of consumer spending have been greatly exaggerated…

New Sectors, New Jobs

As an investor, you can’t focus on what’s wrong. Otherwise you’ll just buy gold. (That is meant to be a lighthearted jab at some of my colleagues who are having their day in the sun with the barbarous relic, no offense intended.)  

Stocks are forward-looking, and the best investors are, too… like some of my colleagues who have bought gold in anticipation of this gold rally. (See? I told ya I meant no offense.) 

So, I’ve had this pet theory that the federal government would move quickly to legalize cannabis as an obvious antidote for rising unemployment and permanent job losses. After all, there’s plenty of demand and innovation ready to be unlocked, but apparently, the powers that be right now do not share my keen eye for the obvious. 

In any event, I had nearly put the idea to bed until about a month ago, when the algo that runs my Alpha Profit Machine trading service picked up on some really nice buying activity in the cannabis sector. We added one stock then and have around 35% gains. And we added a second one last week that’s already up 15% or so. 

Pro tip: I think it’s time to start looking at cannabis stocks again. And if you want a look at how Alpha Profit Machine works, you can see right HERE.

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.