John’s Commentary – Nov 12 2018

The tone of the market has improved markedly in this last week. One has the sense that a more sustained rally will emerge soon – perhaps today, perhaps after a larger downdraft to recent lows.

Regardless of the broader market, oil and oil stocks have probably bottomed or are close enough to a low that any oil company with a good production growth profile is now worth buying. As previously, that means companies with meaningful positions in the Permian Basin, particularly its Delaware Basin region. That includes previously mentioned OXY & APA among larger names and smaller, developing companies MTDR, JAG, & ROSE. To the latter group, I will now add PVAC, DNR, HK, and, slightly lower and most speculative, LPI. In addition, the election-day defeat of an anti-drilling proposition in Colorado makes PDCE and HPR very attractive at current prices.

Also in the natural resource space, gold seems to be in a bottoming phase – just as the US$ is probably approaching a top. Now seems an excellent time to re-emphasize GG and WPM for purchase at current prices.

Other areas in the materials space that have not previously been highlighted are very interesting. On weakness, select companies in packaging materials, chemicals, and industrial metals would be good buys. DWDP, LYB, and ARNC all face positive developments over the next year or two that should help their prices move upward.

Of companies mentioned as prime beneficiaries of 5G deployment, RHT has already performed extraordinarily well [up 49%] in a short period, but CTL and ZAYO have both performed poorly. CTL, with a dividend yield of 10.3%, and ZAYO should both be bought now by patient investors. An additional name in this area, also for patient investors, is DISH. Exactly how it will benefit from 5G is not clear, but when it does become clear, its stock price will likely be much higher.

There continue to be a large number of small to medium biotech companies in all stages of the biotech life-cycle that are very attractively priced for large potential gains over the next few years with current good entry points in both the public and still-private markets. Call if you wish to discuss possibilities in this area. Otherwise, I will here again emphasize the XBI ETF though this only captures a few of the most interesting companies.

Election day brought very positive results for cannabis companies. The companies doing business in the United States [that for byzantine reasons cannot be listed on U.S. exchanges so are listed in Canada] have mostly done poorly in the last few days despite the election news
which portends the passage in 2019 of the States’ Act, which will decriminalize cannabis at the federal level and leave that authority to the states. A number of the better-placed American companies have not been the subject of the bubbly valuations that have attached to their Canadian counterparts that have chosen to list on U.S. exchanges [CNTTF being an exception among Canadian companies in listing and valuation!]. Adding to my prior enthusiastic recommendation of MedMen MMNFF, I will now add CuraLeaf LDVTF and Charlotte’s Web
CWBHF – all three very interesting at current prices. STZ – among consumer staples companies – with its large investment in CGC remains the conservative and relatively safe way to investment in the future of this new market/industry. Expect volatility if you invest in the pure-play companies.

Finally, continue to avoid the companies [AAPL, FB, NFLX, etc.] and sectors – electric utilities, consumer staples, most retail – that have received negative attention in prior notes.

John Stewart
Chief Investment Officer

By | 2018-12-13T14:19:51+00:00 November 12th, 2018|John's Notes|0 Comments