Asymmetrical Investments

Part
01
of five
Part
01

Asymmetrical Investments (A)

With telecommunications key to the data-driven economy, investments in the development of 5G networks and development overseas are both low-risk and carry the promise of additional rewards. Below is a summary of these markets along with our picks of companies that are likely undervalued compared to their potential, thus increasing the potential payoff.

5G INFRASTRUCTURE

  • IDC, a market intelligence firm, expects the 5G infrastructure market to "soar from $528 million in 2018 to $26 billion in 2022."

US News & World Report considers the following seven 5G stocks to be the best for investors:

Of these, we judge Marvell Tech to be the most under-valued while still having little risk:

  • To quote US News, Marvell is a "consumer semiconductor products company [which] has its hands in a number of high-growth, interrelated areas, including 5G, cloud, artificial intelligence, enterprise hardware and the automotive space."
  • While Marvell's stocks have underperformed the market (and may have lost some traction due to the 2018 acquisition of Cavium for $6 billion), overall value has increased in the last 5 years.
  • Marvell's stocks show greater volatility than the overall market, opening the possibility of turning a greater profit in the short- and long-term. Those stocks are down slightly from their most recent July 27 peak, so immediate investment could take advantage of this dip.
  • Marvell recently won a contract "with Samsung to provide chips to power LTE and 5G base stations, which are integral to improving connectivity." This has already resulted in Marvell stocks recovering from their 2018 slump.
  • Should Marvell lock down design contracts with other manufacturers, their stock could see a significant boost in both the near- and long-term. With their stocks undervalued in 2019, there is little risk beyond the risk of underperformance and a good possibility of strong gains, as when the stock nearly doubled in value over the last nine months.

APAC TELECOMS

  • According to Sara Ketterer, CEO and Fund Manager for Causeway Capital Management, Asian telecoms benefit from "controlling the bulk of market share and enjoying favorable regulation," and yet are undervalued when one considers their markets and history.
  • Bloomberg's choice picks in this region are iShares Global Communications Services ETF (IXP), China Mobile, and NTT Docomo in Japan.
  • Given the uncertainty of how the current US-China trade war will play out, investments in Chinese companies carry an unknown risk which, in our judgment, makes it difficult to say that they don't outweigh the potential reward.
  • Of the other two recommendations, Docomo stock has remained relatively stable over the last few years and is likely a low-risk investment.
  • IXP has recovered from a drop-off in late 2018, but still down from its peak in 2016 and may be undervalued compared to its growth potential.

SOUTHEAST ASIAN OPPORTUNITIES

While we do not have a specific recommendation for a company, due in large part to translation issues making it difficult to evaluate them, we do believe that telecoms in Southeast Asia in general and Vietnam in particular are also undervalued compared to their growth potential.

RESEARCH STRATEGY

We began our research by studying the concepts behind asymmetric investments (aka asymmetric "betting"). This gave us a reasonable, if layman's, foundation and also discovered several firms, including some very prestigious financial institutions like JP Morgan, which advertised asymmetric returns on investments. However, these were generally simply ad copy for mutual funds which did not indicate what the specific investments in the fund were. Since we understand the request to seek specific, individual investment opportunities, we passed these by. However, these initial findings were instrumental in showing how ad copy could obscure the true target of this brief.
So armed, we decided to back into the request. We pulled several lists of "best" upcoming investments from reputable sources like Bloomberg and conducted quick research into each. While finding the term "asymmetric" in conjunction with the investment would have been convenient, we were less concerned with this than with finding potential investments with a very high reward-to-risk ratio with low buy-in thresholds. We have explained our reasoning our picks in our findings above.
The assumption of a recession or downturn in the market in the next 1-2 years could be read in two ways. First, that the investment should be able to produce asymmetric profits despite the downturn, or second, that the investment should be able to produce asymmetric profits because of the downturn, i.e., that the investment would be made after the market had hit bottom. In the end, we split the difference, with one investment that, being based on a new technology that is just now coming online, is likely to see minimal fall-out from the market downturn. The other, namely, investing in overseas telecoms, may be affected by the potential recession, but given the long-term viability of this industry, any downturn simply provides a better entry-point to the market.

As requested, we have not included cryptocurrencies in this brief, though several sources expect the cryptocurrency market to surge again in the coming year. It may be beneficial to explore this area in a separate report.
Part
02
of five
Part
02

Asymmetrical Investments (B)

The cannabis market along with the technology market hold some interesting asymmetrical investment options, including Emerald Health Therapeutics, Cresco Labs, Tilray, and Micron.

CANNABIS

  • A large percentage of the world consumes cannabis in one form or the other.
  • Many countries are making cannabis legal.
  • Other companies such as tobacco and liquor are expanding into the cannabis market.
  • The international cannabis market is predicted to be $31 billion by 2022. This is a market growth rate of 230%. By 2030, it is expected to be $50 billion.
  • Canada has recently legalized cannabis consumption and we are now seeing Canadian cannabis producers on the US exchanges.

CANNABIS- EMERALD HEALTH THERAPEUTICS INC (EMHTF)

  • EMHTF has supply deals with British Columbia, Alberta, Saskatchewan, Ontario and Quebec.
  • They plan to have their nationwide business running by the end of the summer.
  • EMHTF recently entered into a partnership with Factors R&D, a Canadian nutritional supplement producer. They are planning a line that will launch in grocery, pharmacy and health stores in 2019. Factors R&D is in the process of submitting their final evidence package to Health Canada to obtain a license for their products.
  • The current production for EMHTF is 51,000 kilograms, but they are expected to grow to 163,000 kg.
  • In a recent press release, EMHTF announced they have a second 1.1 million square foot greenhouse slated to be open in 2020.
  • They are also preparing a facility that will be capable to processing 1 million kg. of hemp "biomass extraction and 600 million units of softgel encapsulation".
  • The most current stock price for EMHTF is $1.4796, which opened at +4.94%.

CANNABIS- CRESCO LABS (CRLBF)

  • Cresco Labs has a consensus of $715 million for 2020.
  • Cresco is probably not on many radar due to their small footprint. They have 56 retail store licenses and operate in less than 12 states.
  • They will benefit from Illinois legalizing recreational marijuana.
  • Cresco will acquire Origin House (ORHOF) in a $832 million deal, pending US antitrust approval. Origin is on of the few license holders in California. This will give Cresco access to more than 500 California dispensaries. With California being one of the most lucrative cannabis markets, this is a big win for Cresco. If all of this plays out, 2020 will be a huge year for Cresco.
  • The most current stock price for Cresco is $7.70, which opened at -0.29%.

CANNABIS- TILRAY, INC. (TLRY)

  • Tilray is the supplier of CBD for two separate studies in New York. One is studying the effects on CBD to battle alcoholism and the other studies' treatment of post-traumatic stress disorder. This is only the second time the US Drug Enforcement Agency has allowed them to send CBD to American scientists.
  • Advocates of CBD state that it can treat a variety of disorders and diseases, including the debilitating disease, epilepsy.
  • More than 15 million people are addicted to alcohol, while over eight million suffer from PTSD.
  • Tilray stock is on the rise after hitting a low in early June.
  • The potential for CBD and illness, along with potential partnerships with pharmaceutical companies makes Tilroy a stock to watch.
  • The most current stock price for Tilroy is $42.32, which opened at -0.52%.

TECHNOLOGY- MICRON

  • Micron has a limited downside currently, which gives it an asymmetric upside. They are currently undervalued.
  • S&P is will most likely upgrade their debt to investment grade from junk.
  • David Tepper has Micron as one of his top holdings.
  • Micron had a rough 2018. Their stock crashed over 50% from their 2018 high.
  • Micron currently has $5.5 billion is cash and short term investments to use as they see fit, with almost the same amount in accounts receivable as liabilities.
  • The second half of the year is usually strong for micro-conductors, which bodes well for Micron.
  • Cloud computing and data center demands will drive the market for more conductors, a permanent demand increase.
  • They are predicted to trade up to $75-80 when the cycle turns up again, maybe 12-18 months from now.
  • Crypto prices are on the rise, possibly making crypto profitable again. If we see this happen, this will also increase the demand for conductors.
  • Taking into account the increase for conductors that are not totally dependent upon the ongoing trade issues, Micron seems to be a true asymmetric trade.
  • The most current stock price for Micron is $41.59, which opened at +0.17%.

RESEARCH STRATEGY

To be included in this research we looked for stocks mentioned multiple times as an asymmetrical investment. We also looked for options that were not the "top" picks to increase the chances of finding a sleeper stock that could outperform.
Part
03
of five
Part
03

Asymmetrical Investments (C)

Two strong asymmetrical investments are real estate notes and real estate exchange traded funds (ETF), specifically the Vanguard Real Estate ETF. Details on the investments are provided below.


Performing Real Estate Notes

  • Real estate notes, also known as mortgage notes, are created when an agreement is made between a party wishing to purchase some type of real estate and a second party willing to provide the upfront funds for that purchase.
  • Performing real estate notes are those that are being paid on time by the property owner.
  • Purchasing a performing real estate note is an asymmetrical investment because the level of risk is low compared to the potential return on investment. On reason the level of risk is low is because the mortgage delinquency rate in the United States for the first quarter of 2019 was 4.42%. This means that only about 4 out of every 100 mortgages currently go into default. This risk can be further reduced by avoiding properties in states with higher than average delinquency rates and choosing properties in states with below average delinquency rates.
  • According to Fannie Mae and Freddie Mac, Texas, New York, Illinois, Pennsylvania, and New Jersey have the highest number of delinquent loans in the country as of December 2018. The delinquency number includes all mortgages that are at least 30 days late. The states with the lowest number of delinquencies are Alaska, Washington D.C., Hawaii, Idaho, and New Mexico.
  • Another way to keep the risk low on a performing note investment is to keep the loan to value (LTV) ratio low. The LTV is the ratio of what is owed on a property compared to the value of the property. The reason this lessens risk is that even if the mortgage defaults, the likelihood of getting your money back is high because the note can be sold, or the property itself can be sold if it is taken in foreclosure.
  • One example of a note investment and its possible payoff is the purchase of a note listed for $26,000 on the site Paperstac. The current principal of the loan is $28,625, so right away, the note can be purchased at a discount of 9.17% [(28,625-26,000)/28,625=0.0917]. If the property owner pays the note in full according to the current terms, the payout would be $905 (monthly payment) x 34 (number of payments left on the mortgage) or $30,770. This is a profit of $4,770 (30,770-26,000). Since Paperstac charges a 1% fee on transactions on their site, this would reduce the profit by $260 (26,000 x .01) and bring the profit to $4,510 (4,770-260). This would be a total return of 17.35% (4,510/26,000) over the 2.75 years remaining on the loan, or almost 6.31% (17.35/2.75) per year.
  • If the same loan ended up in default, the investment could also pay off. According to realtor.com, the estimated value of the property is $136,800. Standard & Poor estimates that foreclosure costs are approximately 26% of the mortgage amount. In this case, that would be $7,442.50 (28,625 x 0.26) based on the current balance of the loan. Adding this to the initial investment plus the 1% paid to Paperstac gives a total investment of $33,702.50 (7,442.50+26,000+260).
  • Data collected in 2009 from foreclosed houses in California found that 80% of foreclosed homes sold at auction were sold for 36% less than the listing price. Although this data is 10 years old, there was not more recent data available.
  • Using the 36% figure, a house listed at $136,800 would sell for approximately $87,552 [136,800 x (1.00-0.36)]. A typical auction fee for selling a house is 10%, and if we assume this is paid by the seller, that would reduce the money from the sale by $8,755 (87,552 x 0.1). This would bring the total made from the sale to $78,797 (87,552-8,755).
  • According to foreclosure.com, the typical uncontested foreclosure in Florida takes about 180 days, or 6 months. To estimate on the high side, let's assume the process takes one year due to additional complications. In this scenario, the return on the investment would be 133.8% [(78,797-33,702.50)/33,702.50] in one year. Although there would be much more hassle in this scenario, the payoff is much larger.
  • Obviously these calculations have been simplified to demonstrate the investment potential, but the figures still give a reasonable idea of the pot

Vanguard Real Estate ETF (VNQ)

  • The Vanguard Real Estate exchange-traded fund had a year-to-date return of 23.84% through August 9, 2019, and the yield for the fund is 3.41%. When looking at asymmetrical investments, yield is an important factor because it is the income earned on an investment. Having income (often from dividends) on an investment, is a way to hedge against potential losses of the initial investment.
  • A study published in 2017 and then revised in 2019, found that from 1870-2015 real estate investments produced returns higher than those of equities, but with much less volatility.
  • A real estate ETF invests in a variety of real estate investment trusts (REIT). REIT is a fund that allows for investors to pool their money in order to invest in real estate. Basically, investing in a real estate ETF allows people to invest in real estate without many of the downsides such as owning a single property, dealing with tenants, and property maintenance. ETFs also take care of diversification for investors, since the fund will hold many REITs from a variety of sectors in the real estate industry.
  • Another benefit to ETFs is the relatively small investment needed to get started. To purchase actual real estate, a large up front infusion of cash is often needed.
  • VNQ has had positive returns over the last 1-year, 3-year, 5-year, and 10-year periods. The overall return for the fund since it began in 2004 is close to 9% per year.
  • The relative safety of this investment is based on the long term rate of return in the real estate industry and the reputation of Vanguard.

Research Strategy

We approached this request by doing some background research on what an asymmetric investment was. Once we knew we were talking about investments with a high upside and a relatively low downside, we decided to focus on various real estate investments. This was based on the fact that real estate has historically given the best rate of return of all investments categories. We proceeded to investigate various ways to invest in real estate, outside the obvious purchasing of property. This led us to ideas such as investing in the construction industry, online real estate investments, hard money loans, and REITs. We proceeded to research the various options and landed on mortgage notes and real estate ETFs as the two that best met the definition of asymmetrical investments, and the details on those investments are provided above.
Part
04
of five
Part
04

Asymmetrical Investments (D)

The cannabis industry and the Asian technology sector are two of the best asymmetric investments that require low investment and have a potentially massive return.

ASYMMETRICAL INVESTMENTS:

EXAMPLE #1: THE CANNABIS INDUSTRY

  • According to an article published by CodyShrink, a large percentage of the world's population consumed marijuana. It was also found that there is "a strong black market cannabis industry". The cannabis industry already has a large consumer base with no need for an adaptation period.
  • Numerous countries are currently making it legal to consume cannabis, including the United States. At present, nine states have made recreational marijuana legal and 29 states have made medicinal marijuana legal for consumption. With many countries across the globe legalizing marijuana, the right companies will position for massive returns.
  • According to Grand View Research, the legal marijuana market is expected to reach $146.4 billion by 2025 and will continue to expand further in the longer term.
  • The stocks are easily available and are mostly listed on NYSE, NASDAQ.

Potential United States Economic Downturn/Recession in the next 1-2 years:

  • According to the Economic Policy Institute, it is highly probable that the United States "economy could slip into a recession sometime in the next 18 months". Expert economists believe that another recession is set to arrive sometime potentially before 2021.
  • USNews stated that when the next country-wide economic downturn comes, sources of capital such as equity offerings, loans, partnerships, and outside investments will tighten or could even "dry up completely in the short term".
  • The impact of this recession on investors might not be as vulnerable to a downturn since the cannabis sector does not dependent on market drivers. After the downturn, it is expected that investors will return to this market at a later stage.
  • There might not be any major reduced revenue effects for cannabis operators in the next recession due to the recession-proof nature of liquor and healthcare industry being replicated in cannabis spending.
  • It was found that falling stock prices create an asymmetric return for those who expect "high income from dividend yield".

Accessible with "Small" Investments of size $25K-$100K:


EXAMPLE #2: ASIA TECH INDUSTRY

  • Investing in Asia Tech is “especially relevant” now with the ongoing trade wars between the United States and China. The public sentiment has become bearish on China, implying that there are fewer people looking to invest in this sector, which further means there is potentially more opportunity for people who are "willing to look".
  • The Asia tech sector has seen a rising trend for mergers and acquisitions that helped Asia tech stocks increase by 60% in 2017. According to the Asian Development Bank, to resolve the gap in its infrastructure, Asia will have to invest over $26 trillion by 2030.
  • With the buses in China switching to electric transmission along with the introduction of self-driving cars, the increase in solar power in India’s electricity grid, and hi-tech desalination plants in Asia are likely to present investors with unparalleled opportunities to make long-term returns.
  • With the tech unicorns in Asia ready to list their shares on their regional exchanges in the near future, the tech industry in Asia is expected to boom.

Potential United States Economic Downturn/Recession in the next 1-2 years:

  • A downturn in the United States economy will have serious and critical implications for Asia. The International Monetary Fund estimates that a 1% point decrease in the growth of the United States will decrease the growth in the emerging markets of Asia by over 0.6% points.
  • According to analysts as reported by the South China Morning Post, market fears of recession is mainly overblown and the stocks of China and the United States are expected to rebound this year.
  • It was found that falling stock prices create an asymmetric return for those who expect "high income from dividend yield".

Accessible with "Small" Investments of size $25K-$100K:

  • The recommended example of asymmetric investment has a low investment with a potentially massive return.
  • Sea Group and Razer, two Singapore-based technology unicorns, experienced a rise in New York and Hong Kong exchanges a few years ago. Razer, a gaming company, attracted over $504 million experiencing an increase in stock by 41% on the first day of trading.
  • Didi Chuxing is working on an IPO in New York according to US-China venture sources. The company currently provides services to over 400 cities in China and has received $56 billion in funding from SoftBank, Tiger Global, and Matrix Partners.
  • Tencent’s e-book unit, China Literature, experienced a surge of 86% on its opening day and obtained $1.1 billion in 2017.
  • Chegg (CHGG), an online education platform, witnessed a 474% rise in 2017 and delivered over 92% of its earnings growth in the second quarter of the year. Similar to Chegg, other education-technology stocks Strategic Education (STRA), Hailiang Education (HLG), and New Oriental Education & Technology (EDU) have also obtained a 99 Composite Rating.
  • According to Investor's Business Daily, some Chinese stocks to watch for are JD.com (JD), Weibo (WB), Kandi Technologies (KNDI), Tencent (TCEHY), Baozun (BZUN), and Nio (NIO). Some upcoming Asian IPOs in the current pipeline include Asset World Corporation and Singha Hotel and Resorts.
  • China Railway Signal and Communications has also chosen to be listed on the STAR market and has performed well upon debut.


RESEARCH STRATEGY

To provide examples of the best asymmetric investments, we scoured through industry reports and media publications on asymmetric investments and what investments, strategies are popular or trending. A thorough search provided us with two promising asymmetrical investment opportunities, excluding crypto investment.

We then looked for further information related to how each of the two investments is accessible by identifying whether the stock is listed in stock exchanges across the globe, currently offering IPO, planning to offer IPO in the coming year, among others. We have not included startups and/or exclusive funds but stocks of companies that are growing and/or are projected to grow in the near future.

We then dug deep and identified if the United States economic downturn/recession is likely to happen in the next 1-2 years and based on data found from economic and financial publications we also obtained information on how the future recession will impact the identified asymmetrical investments (cannabis and Asian tech industries) in the coming years. We have also ensured the recommended investments do not require an investment of more than $100k.

After careful consideration of the available data and analyzing the implications, we have recommended the cannabis industry and Asian tech sector as the best asymmetric investments examples.
Part
05
of five
Part
05

Asymmetrical Investments (E)

Investments in natural resources and in the Asymmetry Managed Portfolios fund are two examples of the best asymmetric investments that do not include cryptocurrencies. There are quite a few examples of good asymmetric investments, but two very different examples have been chosen to provide plausible options for very different potential investor preferences. Investments in cannabis stocks were also mentioned quite frequently by experts in the context of asymmetric investments, but cannabis stocks were not included in this analysis because of the significant regulatory risk inherent in the sector.

NATURAL RESOURCES

  • Due to its inherently high volatility, the natural resource sector can be a great source of asymmetric investment opportunities.
  • The prices of natural resources exhibit "extreme cyclicallity", and this is where the high volatility comes from. This means that the boom and bust cycles of commodities are much more frequent and extreme than what can be seen in other asset classes.
  • The cycle happens because of the low supply-side price elasticity and high demand-side elasticity. Demand always leads supply by at least one time period, which means that situations in which the supply of a natural resource shrinks and demand climbs are pretty common for natural resources.
  • Suppliers of natural resources need time to adjust their supply. For example. If a farmer decides to plant more corn today, the effects on the supply can only be seen when the time to harvest the corn arrives.
  • Therefore, going long (betting on a price increase) on natural resources is one of the best asymmetric investments because it allows investors to take advantage of the high volatility.
  • As with any long investment, the downside is capped at 100% because the maximum an investor can lose is the entirety of his investment, and this could only happen in the unlikely case that the price of a commodity drops to zero.
  • The upside, however, can be much greater than 100%, and those types of gains are much more common in the natural resource sector than in other asset classes.
  • However, people wanting to short (betting on a price decrease) commodities should be wary because the downside is not capped when shorting. To circumvent this, investors are advised to place stop-loss orders to limit their risk.
  • Investments in natural resources can be accessed by anyone because almost every broker offers commodity investing. Even though most brokers have a minimum account size requirement, it is usually less than $2,500.
  • Commodities, and especially gold and other precious metals, are considered "safe haven assets". These are assets that are expected to retain or even increase in value during times of major economic upheaval, such as a recession.

ASYMMETRY MANAGED PORTFOLIOS

  • Asymmetry Managed Portfolios (AMP) is a fund that is actively managed by Shell Capital Management, LLC. The fund employs an asymmetric investment strategy, and it has a track record since 2005.
  • The fund is aimed at providing its investors with a positive asymmetric return profile over a full market cycle. It defines a positive asymmetric return profile as one in which the total return exceeds the downside risk.
  • Shell Capital Management advertises AMP as an "unconstrained, flexible, adaptable, go-anywhere global tactical strategy without the limitations of a fixed benchmark."
  • AMP tries to match investor's tolerance for risk and desired return to its offerings to create a customized solution for each investor.
  • AMP invests in global exchange-traded securities of various types. The fund's global exposure diminishes the risk arising from any single economy, including the US stock market. Please note that, while the risk is limited, it definitely still exists, especially because global markets tend to move in unison.
  • Shell Capital Management actively manages the risk in the fund, and it applies a directional trend-following strategy when choosing investments.
  • Another unique feature of the AMP is the Asymmetry Investment Program. This is a separately managed account program that offers transparency, liquidity, control, and the potential for tax management.
  • The Asymmetry Investment Program account is opened in the investor's own name at an independent custodian. The account is "available on several custodian and brokerage platforms through independent investment advisors to individuals, family offices, wealth managers, trusts, and institutions." This clearly shows that even individuals with modest sums of capital to invest can participate in the AMP.
  • While the fund is not exclusive and is available to investors regardless of the amount of capital, the fund is only available to residents of states in which Shell Capital Management is registered in. Interested individuals can contact the company to see a full list of available states.

RESEARCH STRATEGY

In order to present the best asymmetric investments for a specific investor, we would need to know more parameters like how much time that investor is willing to commit to managing his portfolio and the preferred investment holding time period. Lacking these important criteria, we have tried to present two very different options. Finding asymmetric investments in the natural resource sector requires a significant time commitment, but gains can be achieved relatively quickly. Investors choosing Asymmetry Managed Portfolios pay experts to manage the portfolio on their behalf, but they might need to wait a number of years for the investment to come to fruition.

Please note that we have excluded cryptocurrencies from our analysis, but a strong case can be made that cryptocurrencies can actually be the best asymmetric investments, especially in times of economic uncertainty. For example, most media outlets only report when Bitcoin reaches record prices, but Bitcoin has been printing higher yearly lows ever since its inception. Additionally, Bitcoin has been created in the aftermath of the 2008 financial crisis, and it was specifically created to help circumvent the next recession. We would be more than happy to present a really sound asymmetric investment strategy for Bitcoin, if you so choose.
Sources
Sources

From Part 02
Quotes
  • "Fact A = There is already a strong ‘black market’ cannabis industry. This means that we already know, 100% for sure, that there is a large percentage of the worldwide population that consumes marijuana. This means that there is a consumer base that is already existing and no adaptation period or explanation needs to be developed. The consumers already exist!"
  • "Fact B = Many countries are currently making cannabis legal. The list grows by the day, but it’s only a matter of time until the US (who, whether you like it or not, is the major influencer of world politics) makes it legal."
  • "Fact C = The ‘acquisition game’ is just getting started. Recently, Constellation Brands (an alcohol company) invested nearly $4 billion into Canopy Growth (the largest cannabis company). It’s important to note that Constellation Brands is not the largest alcohol company. In fact, there are many alcohol companies that are much larger than Constellation Brands. And if we were to look at the tobacco industry, or any other vice-industry competitors (ummm… pharmaceuticals???), then we’d all see that there is a massive amount of money on the sidelines that has yet to enter the cannabis market."
Quotes
  • "Cowen & Co. estimates the international cannabis market is a $31 billion opportunity for producers and investors"
  • "While investors watch and wait for potential federal marijuana legalization in the U.S., Canada legalized recreational marijuana use nationwide in 2018. In the past year and a half, a parade of Canadian cannabis producers have listed on major U.S. exchanges for the first time. Most of these companies are investing aggressively in growing their businesses and securing high-profile partnerships. "
  • "Emerald Health Therapeutics (EMHTF) Emerald Health Therapeutics has supply deals with British Columbia, Alberta, Saskatchewan, Ontario and Quebec and plans to have its nationwide business up and running by the end of summer. Emerald also has a deal with Canadian nutritional supplement producer Factors R&D Technology to develop a line of CBD nutritional products and non-cannabis health products. The endocannabinoid product line is expected to launch in grocery, pharmacy and natural health stores in mid-2019. Emerald’s current annual production capacity is 51,000 kg, but Cowen projects it will grow to 163,000 kg. EMHTF stock trades in over-the-counter markets."
  • "Cowen analyst Vivien Azer says Aurora is a leader in the global cannabis market outside of Canada, including in Germany. Up to this point, the company’s international growth has been limited by supply constraints, a phenomenon which is likely to continue for at least a few more years. Aurora’s current annual cannabis production capacity is about 150,000 kilograms, the largest of any Canadian company. Cowen projects that capacity will eventually expand to 625,000 kg. Cowen has an “outperform” rating and a price target of 15 Canadian dollars ($11.09) for ACB stock."
Quotes
  • "“With the first 1.1 million square foot (25 acre) greenhouse of our Pure Sunfarms joint venture now in full production and producing material net income and the second 1.1 million square foot greenhouse being converted for operation in 2020, we are now focused on finishing construction, licensing, and operational scaling of commercial cultivation and post-harvest processing in our other facilities and with third-party service providers, and have recently had multiple accomplishments to report,” said Riaz Bandali, Chief Executive Officer of Emerald. “These initiatives build out our cultivation and manufacturing platform and provide a foundation for our Cannabis 2.0 product development activities that we are continuing to advance.”"
  • "Within the next weeks, Emerald’s strategic manufacturing partner, Factors R&D Technology Inc., will submit its final evidence package to Health Canada to license a segregated and secure portion of one of its natural health product manufacturing facilities for the extraction and encapsulation of CBD from hemp. The facility being prepared for CBD production has an annual processing capacity of 1 million kg of hemp biomass extraction and 600 million units of softgel encapsulation. "
Quotes
  • "Yet another vertically integrated dispensary operator that could blow Aurora out of the water in terms of 2020 full-year sales is Cresco Labs (OTC: CRLBF), which has a consensus of $715 million next year. "
  • "On the surface, Cresco Labs probably doesn't look like much. It has 56 retail store licenses, will operate in just under a dozen states, and is poised to benefit from Illinois legalizing recreational weed and commencing sales this coming January. But this doesn't exactly have Cresco Labs standing out, especially considering that it has just a handful of open dispensaries. "
  • "Rather, the bulk of the excitement comes from its pending all-stock acquisition of Origin House (OTC: ORHOF) for what initially announced as an $823 million deal (it's subsequently fallen as Cresco's share price has retraced) at the beginning of April. Origin House is one of a select few holders of cannabis distribution licenses in California. As such, it'll be giving Cresco and its branded products access to more than 500 Californian dispensaries. With the Golden State being the most lucrative marijuana market in the world, Origin House is Cresco's golden ticket. "
  • "Should the deal be completed – it's awaiting U.S. antitrust approval, but has been given the green light by shareholders of both companies – Cresco Labs could easily surpass Aurora Cannabis in 2020 revenue. "
Quotes
  • "Cresco Labs Inc. (CRLBF) Other OTC - Other OTC Delayed Price. Currency in USD Add to watchlist Quote Lookup 7.70-0.02 (-0.29%"
Quotes
  • "Global spending on legal cannabis is expected to grow 230%, to $31.3% billion in 2022, compared to $9.5 billion in 2017, according to Arcview Market Research and BDS Analytics. The research suggests that most of that, nearly $23.4 billion, will be spent in the U.S. With more states voting for the legalization of marijuana and business interest sparking, that definitely makes sense."
Quotes
  • "Marijuana stock Tilray (TLRY) is shipping CBD to help U.S. studies into whether it can help treat alcohol use disorder and post-traumatic stress disorder."
  • "It has been sending the compound to researchers for two separate studies at New York University, the firm announced Thursday. It marks the second time the U.S. Drug Enforcement Agency has allowed it to send CBD to American scientists."
  • "CBD is derived from cannabis, but doesn't have THC or deliver a high. Proponents say CBD can treat a variety of medical issues including inflammation and epilepsy."
  • "More than 15 million Americans are addicted to alcohol, while over 8 million experience PTSD, federal survey data show. Researchers believe CBD could be a valuable new tool in fighting the debilitating conditions."
  • "Tilray stock rose 4.7% to 43.89 in the stock market today. The marijuana stock has been on a long decline since hitting its all-time high of 300 on Sept. 19 last year. The poor performance has seen its IBD Composite Rating crumble to a woeful 10. Tilray stock has been trading right at its 50-day line for several weeks after hitting a 2019 low in early June."
Quotes
  • "Tilray, Inc. (TLRY) NasdaqGS - NasdaqGS Real Time Price. Currency in USD Add to watchlist Visitors trend2W10W9M Quote Lookup 42.35-0.22 (-0.52%) As of 11:00AM EDT. Market open. "
Quotes
  • "Micron has asymmetric upside and limited downside."
  • "S&P is likely to upgrade Micron's debt to investment grade from junk, and BMO upgraded the shares to outperform."
  • "Additionally, billionaire David Tepper, one of the world's sharpest distressed debt and equity minds, has Micron's stock as his top holding."
  • "Risks to earnings are fully priced in. Share prices typically recover before earnings fundamentals do. The recent momentum shift indicates Micron may be just getting started rallying."
  • "To say Micron (MU) had a tough 2018 would be an understatement. After hitting an all-time high in May, the mood went from euphoria to utter despair as the stock crashed over 50 percent from its high. The fall was an overreaction, and Micron is now an asymmetric opportunity. Micron now trades for a hair above book value and has less than 20 percent downside against over 100 percent upside. For these reasons, Micron is my top pick for 2019."
  • "1. The company's book value now sits at $30 per share. Sure, Micron fell below book value last time during the cycle through, but their poor balance sheet at the time forced the old management to dilute shareholders with (crappy) junk convertible debt. This time around, the balance sheet is good. As of the last quarterly filing, Micron has $5.5 billion in cash and short-term investments. The company is free to use the cash as it sees fit, as they have roughly the same amount of accounts receivable as current liabilities."
  • "2. Micron's balance sheet is in such a good position that S&P raised their outlook for Micron's debt. Micron is likely to escape junk credit status from now on, as a result of sound management under Sanjay Mehrotra and his team. Micron currently carries a junk credit rating due to mismanagement in the past, where the company found itself issuing convertible debt in down markets to stay afloat (over and over again). The most recent round carried an interest rate of 7.5 percent, but Micron should have the debt paid back shortly (they had $398 million in debt at the end of the quarter, vs. $859 million the prior quarter). As of the time of writing this, the debt is likely all gone. As a result of the debt going away and cash going up, book value has steadily risen. Therefore, the downside is limited."
  • "3. The rating agencies aren't alone in seeing the improved situation at Micron. David Tepper, distressed debt/equity specialist and one of the world's richest men, has Micron as his largest holding. I think he's a smart guy and sees everything I'm seeing in Micron and more. BMO recently upgraded Micron for many of the same reasons."
  • "5. Micron is profitable. Earnings estimates are more in line with reality now after the shortage. Current earnings estimates are as follows."
  • "Current analyst estimates have Micron earning $7.88 this year. I think estimates are still a little too high, but even if Micron only earns $6 this year, the floor for Micron's stock ascends to $36. Given that it's trading for less than that now, you're getting a pretty good price. Once the cycle turns, Micron's price to earnings ratio should start to rise again."
  • "1. The second half of the year traditionally sees stronger demand for semiconductors than the first half. CEO Sanjay Mehrotra indicated in the last quarterly conference call that he expects the excess capacity to work its way through the system by then. The semi markets have become more of an oligopoly over time, so supply should be reasonably constrained compared to past cycles."
  • "2. Long term, demand for Micron products will increase due to long-term trends like cloud computing, data centers, and the need for semiconductors in cars. The only real question is when the long-term trend will overwhelm the short-term weakness."
  • "1. Apple's (NASDAQ:AAPL) sales should (honestly) be fine, but if iPhone demand falls below expectations, Micron will be adversely affected. 2. The flip side to the trade war ending being a positive catalyst is that if the trade war with China escalates, Micron will feel it, both on their top and bottom lines. I feel that this risk, in particular, is adequately priced in. 3. Micron may not be able to keep up technologically in the future with their competitors, mainly Samsung (OTC:SSNLF) and SK Hynix (OTC:HXSCF) (OTC:HXSCL). "
  • "Based on this, Micron could trade up to $75-80 when the cycle turns up again. This may be 12-18 months from now, but the stock will tend to start rallying well in advance of the future strong earnings reports. In light of all of these things, Micron is my top pick of 2019, and the shares are a strong buy."
Quotes
  • "Delaney also increased his price objective on MU stock substantially. from $40 (which I thought was unreasonably low) to a much more optimistic $56. Evidently this analyst is increasingly bullish on semiconductor stocks generally, suggesting that Goldman is taking a more favorable stance on chip makers due to a supply shortage. Delaney wrote:"
Quotes
  • "Anders Bylund (Micron Technology): The memory-chip maker has been undervalued for months. At this point, I see plenty of signs that the cyclical computer-memory industry is about to start bouncing back from the latest downturn. As the only pure-play memory stock you can find today without reaching into the Pink Sheets, Micron looks like a strong buy."
  • "A significant portion of Micron's pain in the second quarter stemmed from U.S. government restriction on doing business with Chinese tech giant Huawei. The Trump administration recently agreed to accelerate licensing deals with Huawei, effectively removing the largest anchor tied to Micron's business."
  • "Trading at a measly 5.6 times trailing earnings and 8.6 times free cash flow, Micron is a downright steal right now. You'd be wise to consider taking advantage of that deeply discounted deal."
Quotes
  • "Legal marijuana is worth an estimated $50 billion for the U.S. today. And since experts have projected the U.S. industry to skyrocket to $80 billion by 2030, it’s time for investors to start paying attention."
Quotes
  • "For Micron (NASDAQ:MU) stock, the more things change, the more things stay the same. Over the last few weeks, MU traded higher on hopes that the trade war would soon end. Seeing those hopes dashed sent the stock lower. As a result, traders now grapple with mixed signals on what Micron stock will do next."
  • "The bulk of forces indicate a continuing downtrend in MU stock. Traders may have reasons for optimism. However, until those reasons turn into results, I expect Micron to fall in the near term."
  • "Re-escalation of the trade war has taken the stock well below its $48.70 per share high from mid-July. It also shows that a secondary cycle has shown up, one related to trade wars. MU stock rises when tensions ease. However, when they heat up again, it sends MU on a downward spiral. How far it falls likely depends on the trade war. This will also hold true even more non-memory chip stock such as Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD)."
  • "However, analysts expect pricing pressure for a different reason. Profits for the next fiscal year still point to a sharp decline. Predicted earnings for the current fiscal year stand at $6.22 per share. However, fiscal 2020 profit estimates have fallen to just $2.48 per share. Wall Street had predicted $4.66 per share only 90 days ago."
  • "Micron will eventually rise, but supply gluts and geopolitical uncertainty will drive down the price of MU stock in the near term. MU has dropped as the trade war with China again intensified. On this news, the hopeful signs that demand had begun to pick up faded away."
  • "However, forces coming into play may turn both memory prices and MU stock around. First, crypto prices have again risen to levels that might make crypto mining profitable again. Moreover, the rise of several emerging technologies will bring a permanent demand increase to the industry."
Quotes
  • "Micron Technology, Inc. (MU) NasdaqGS - NasdaqGS Real Time Price. Currency in USD Add to watchlist Visitors trend2W10W9M Quote Lookup 41.59+0.07 (+0.17%) As of 11:15AM EDT. Market open. "
  • "Analyst Recommendation by Argus Research BUY Fair Value View details Undervalued "
From Part 03
From Part 04
Quotes
  • "There is a real possibility that the U.S. economy could slip into a recession sometime in the next 18 months."
Quotes
  • "Economists now believe that another recession might arrive sooner rather than later — potentially before 2021 — and a growing group of analysts and experts have started to talk more about the possibility of a recession on the horizon."