Last Chance for Pot Stocks?
In 2008, I started working at an investment research firm in D.C. I took the train from Baltimore, emerging from underground at the Farragut North Metro stop.
It was a great young company that was attempting a huge transition away from an ad revenue-based business model. This company had grown revenue like wildfire in the years leading up to the financial crisis. But ad spending tends to dry up when recessions hit. And the company I joined had been devastated...
When I started in March 2008 (the same week Bear Stearns went bankrupt!), the company still had something like 25–30 employees. Within a few months, it was down to maybe 10. I don't want to say everybody was looking to me to turn things around. Because at that point, the mission was very clear. Everybody knew what needed to be done. And everybody knew what their role was (funny how easy that is when you can count the number of employees on both hands).
This was quite literally a do-or-die situation. If we failed to find new streams of revenue that would pay our salaries and the rent, well, there wouldn't be any salaries to pay. Desperate times have a way of focusing your mind.
The irony is, looking back, I don't remember feeling desperate at all. Quite the opposite, actually — it was thrilling. This company would literally sink or swim based on what my coworkers and I did each and every day. Every single day mattered. And the work we did that year did the trick. That company has been on solid footing ever since.
The success we had is even more remarkable considering the fact that we transitioned that company to a subscription model at exactly the worst time possible. Because nobody wants to buy stocks when the stock market has been cut in half.
Las Vegas Sands (NYSE: LVS) at $1.50? No thanks...
Bank of America (NYSE: BAC) at $2.25? What? Are you crazy?!?
It might be the most basic investment advice there ever was: buy low, sell high.
But I can tell you, it is very hard to buy stocks when they are cheap. Because stocks don't just get cheap for no good reason. Stocks get cheap because investors have been selling them out of fear.
You can be pretty sure that if stocks are cheap, fear is in the air.
So let me ask you: Do you want to buy stocks right now?
If the answer is no, well, I'm sure there are very good reasons. The trade war with China seems to have no end in sight. And the Fed seems hell bent on raising rates to the point that it tanks the economy. Things seem kind of bad right now. And I can't tell you that you're wrong. The situation could absolutely get worse.
I can tell you that it's the "not knowing" that is the worst. It was like that back in 2008–9, when I was working in D.C. The financial crisis was like a slow-motion car wreck, only it was happening in complete darkness. Especially at the start, nobody knew what the real problems were. Information leaked out slowly, a little piece here, another piece there...
I would say this "not knowing" helped us in our business transformation. Investors were desperate for information — they wanted to know why. I dedicated myself to answering that question, and it meant a few hundred hours reading about credit default swaps, talking to insiders about the leverage situation, and connecting the dots.
In the end, we created a lot of good will amongst our readers by simply giving them solid information about what was going on and also offering up actionable ideas about what to do. And I'll point out, too, that this is something Wall Street just doesn't do for individual investors. Yeah, Wall Street loves to tell you how much they love cloud stocks when the market is rolling. But you get a 10% correction, and *crickets.*
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One Thing I Know...
For the most part, the economic cycle is a pretty reliable thing. We get long periods of growth punctuated by periods of recession or slow growth. With the exception of the financial crisis, these periods of recession last about two quarters, or six months.
And there's a good reason for this. It's because populations grow. More people buy more stuff. Inflation ensures that prices rise at least a little. So the companies that sell more stuff at higher prices tend to see their revenue, earnings, and dividend payments rise over time.
Every once in a while, this formula gets upended. But for the most part, it's pretty reliable. And that's why we own stocks for the long term. There's never been a 10-year period where stock prices have been down.
I frankly don't know if it's time to buy Bank of America or Las Vegas Sands for the long term. These stocks haven't been cut in half. And we haven't really seen one of those periods where growth goes in reverse.
But I do see one group of stocks that have been cut in half, and that also have tremendous revenue and earnings growth coming soon. It's marijuana stocks. Tilray (NASDAQ: TLRY) and New Age Beverages (NASDAQ: NBEV) are both down more than 50% from their recent highs. Problem is, it's hard to know if these two are the long-term winners...
One thing we do know is that there will be pot stock winners. Because a sector can't go from basically nothing to $50 billion in revenue without there being a winner or two.
I made my first marijuana stock recommendation about a year ago. It's the one stock I am 100% sure will be a winner. For starters, this stock has held strong while other pot stocks have tanked. And it's because big investors and insiders know exactly how big its opportunity is.
This company doesn't grow marijuana. And it doesn't make infused beverages or whatever. It simply provides a basic and indispensible service to the companies that do.
I'm so confident in this stock that I basically bet my job on it when I told my boss to buy it. He's on board, too, and says it's the only pot stock he'll ever own. The time to buy is here, and here's what you need to know.
Until next time,
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 also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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