Greetings Friends,
The third quarter ended last week. With just three months left in 2017 both US and global stocks are having a good year.
The US based S&P 500 was up 6% in the third quarter – giving it a total return of 15% through the first three quarters of the year.
- Vanguard Total World Stock ETF (VT) is up +17% on the year.
- iShares MSCI Emerging Markets (EEM) is up + 30%.
These are excellent returns by almost any standard.
However – the returns were even better in the cannabis sector.
Cannabis Stocks Rallied Big in the Third Quarter
Cannabis stocks delivered huge gains in the third quarter.
The Canadian cannabis index was up almost 30%.
That bullish movement triggered an even bigger rally in many of our favorite cannabis stocks.
- Canopy Growth Corp (TWMJF) + 63%
- Aphria Corp (APHQF) + 46%
- Aurora Cannabis (ACBFF) + 47%
- Organigram (OGRMF) + 43%
Anyone who bought these stocks last spring and summer has basically crushed it.
In the last 15 months cannabis stocks have delivered crazy gains. Take a look below.
Despite the big gains I see Plenty of Growth Ahead
Despite the impressive run higher, I see more gains ahead.
In fact – I see two powerful catalysts directly on the horizon that tell me cannabis stocks are going to rally big in the fourth quarter and finish the yeardeep into a new all-time high.
California voted to legalize recreational cannabis last November. That program goes into effect on January 1, 2018. This is set to create a $5 billion market. It’s a huge event for the cannabis industry and I expect it to attract a lot of capital into cannabis stocks.
Just as big and important, recreational cannabis is set to become legal in Canada in the summer of 2018.
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Consulting firm Deloitte is projecting total economic activity of $23 billion and annual cannabis sales of $6 billion by 2021.
Between California and Canada, $10 billion in new sales could be flowing into the North American cannabis industry in the next 18 months.
That’s a huge deal and the cannabis industry is looking very major and very legit.
My Advice on Cannabis Stocks
The cannabis story is in the first inning. If you own weed stocks – buy some more. If you don’t own any – buy some for the firs time.
This is a high risk investment. I am expecting plenty of volatility. But I also see a very unique opportunity.
I am also expecting the S&P 500 to have a strong fourth quarter and close to the year.
The biggest knock against US stocks right now is that the S&P 500 is overvalued.
The S&P 500’s P/E ratio of 25 is near the higher end of its long-term range. Take a look below.
The S&P 500 may be overvalued compared to historical averages. But I don’t think that’s the leading indicator right now.
I see three reasons to be bullish.
The simplest is that the S&P 500 has a lot of upward momentum right now. I still see the path of least resistance as higher.
Seasonal factors also look good. The six months between October are the strongest six months of the year for the stock market.
And finally, S&P 500 earnings growth has been great in 2017 and should hit a new all-time high in each of the next four quarters.
Take a look at actual and projected earnings growth in the chart below.
If the S&P 500 and cannabis sector close strong this year we are in position to capitalize.
Our portfolios are loaded with the best companies in the S&P 500 and the best cannabis stocks.
That’s all I’ve got for this update.
If anyone has questions feel free to say hello.
mike@vodickagroup.com
Your Investment Partner,
Mike
This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
Michael Vodicka owns shares of Canopy, Aphria, Organigram, Aurora.
