Friday Mailbag: Cannabis, Bonds, Defense…and More
Welcome, global villagers. In our interconnected world, information is exchanged around the clock at the speed of fiber optic light, giving us the ability to communicate and work with people who are located anywhere.
Every day, at all hours, I receive a flurry of emails on a wide variety of topics from people living in far-flung regions. It’s fashionable to lament the dehumanizing effects of the Internet, but I prefer to see digital communications as ushering in a golden age.
Which brings us to this week’s mailbag. Below, I answer reader emails related to “canna-business,” bonds as portfolio hedges, small-cap defense stocks, and more.
From Woodstock to preferred stock…
A reader who uses a mysterious pseudonym writes:
“Following up on GWPH bt @ 121.40 sold today @ 128.70 $365 profit in 18 days. Annualized this gain is 148%. I will follow chart looking for a pullback and reenter. Thanks again!” — Black Arrow
Glad to help you make money. Medical marijuana is a huge and growing investment opportunity. To be sure, marijuana remains banned at the federal level and advocates of marijuana normalization are wary of President Donald Trump’s new U.S. attorney general Jeff Sessions. After a rocky battle in the Senate, Sessions was finally confirmed this week. The socially conservative Sessions has made it quite clear that he’s no fan of pot in any manner, shape or form.
However, it’s unlikely that even the AG’s office and all of its considerable clout can slow the unstoppable “green rush.”
Marijuana has evolved from Woodstock to the boardroom, from a blue-hazed counter-cultural act of rebellion to mainstream capitalism. Problem is, most marijuana companies are tiny and highly risky penny stocks.
That’s why I’ve recommended GW Pharmaceuticals (NSDQ: GWPH). With a market cap of $3.2 billion, GWPH is a well-funded biotech that makes groundbreaking marijuana-based medical treatments for chronic diseases that are resistant to conventional therapies. GWPH year to date has soared 14.5%, compared to 3.2% for the S&P 500. Further market-beating gains are likely for this best-of-breed pot stock.
The name is… bond.
No, I’m not talking about 007. In previous articles, I’ve counseled readers to hedge their portfolios with bonds. I received this concise four-word query:
“What kind of bonds?”— Cynthia P.
Bonds are supposed to provide ballast for a portfolio during rough stock market seas, but as interest rates rise, investors such as Cynthia are unsure about bonds.
Although bonds are less risky than stocks, that doesn’t mean they aren’t risky at all. Investors need to account for several different kinds of risk when they evaluate bonds, notably interest rate risk.
Interest rate risk accounts for the chance that interest rates will increase in the future, making your bonds less valuable.
Every portfolio needs the safety of bonds and not all bonds get crushed when the Federal Reserve tightens. Short-term bonds are less vulnerable to interest rates than longer-term bonds, making short-term bond exchange-traded funds safe and attractive bets.
The global arms bazaar…
“Would you recommend ATRO over KTOS in the defense sector?” — Conrad C.
The Trump administration’s foreign policy can be summed up in one word: aggressive. The president vows to challenge the geopolitical status quo and significantly boost defense spending, creating a powerful tailwind for the aerospace/defense industry.
That spells a multi-year bonanza for manufacturers of military aircraft and weapons systems, especially for often ignored small-cap defense stocks.
I’ve already written about the investment virtues of aerospace electronics firm Astronics (NSDQ: ATRO) in For Bigger Defense Stock Profits, Think Small (February 7). With a market cap of $1 billion, Astronics is poised to profit from Trump’s big defense build-up.
As for Kratos Defense and Security Solutions (NSDQ: KTOS), there are better places for investors to put their money right now.
With a market cap of $619 million, Kratos provides safety and security products in the areas of communications and surveillance, for government and commercial customers. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security.
Kratos is an inherently sound company with an entrenched client base and quality products. What’s more, its particular field is booming. However, the vagaries of government contracting will result in an intermediate-term earnings drought.
I’d hold off for now.
Regarding my statement that “the world is starting to look a lot like 2008” in The Global Domino Effect: Are Your Ready? (February 6), this reader comments:
“Totally agree with you that it is looking real scary despite my portfolio hitting new highs nearly every day. This is a bubble and it will burst; it just might take a little while.” — Nancy K.
Look at it this way, Nancy: When the overvalued stock market finally corrects, our team of investment experts will be there to pinpoint the exciting buying opportunities.
Got any questions or feedback? Shoot me an email: firstname.lastname@example.org — John Persinos
Put volatility to work…
Donald Trump’s surprise election as president has turned the investment world upside down. Sure, the markets rallied after Trump won, but lately they’ve been see-sawing. What’s more, most analysts are now calling for a market correction in 2017.
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