VIDEO: Proven Criteria for Picking The Best Pot Stocks
Welcome to my latest Weed Report. The article below is an edited transcript.
In addition to writing Marijuana Investing Daily, the publication you’re now perusing, I also serve as chief investment strategist of our premium trading service, Marijuana Profit Alert.
Readers often ask me: How do I determine when a stock is worthy of the Marijuana Profit Alert portfolio? Let’s examine a few key criteria.
The list below is by no means exhaustive. For additional details, I suggest you read my article: 12 Criteria for Picking the Right Pot Stock.
In the meantime, the following six-point checklist can help you separate the wheat from the chaff.
- Solid balance sheet.
How can you tell if your holding will buckle under its debt load? Study the company’s balance sheet. Determine whether it has sufficient cash to satisfy creditors. If a company is imploding, its cash cushion will wane. Soon it won’t be able to pay its bills.
Some indebted marijuana companies beat the odds and clean up their balance sheets. But poor debt metrics usually spell doom.
- Provides a value add.
I especially like the “picks-and-shovels” plays on the marijuana boom. These companies aren’t necessarily about growing marijuana. They’re infrastructure stocks that can be wildly profitable.
Marijuana investing remains risky, but you can seek greater safety (and profits) by focusing on the ancillary firms that provide infrastructure services for growing pot companies in either the recreational or medicinal segments.
- The behavior of insiders.
If corporate insiders are dumping a stock, they know something that the rest of us don’t. It’s a tip-off that the people running the company realize that the stock is about to underperform the market. But there’s a caveat: sometimes insiders sell for personal reasons that aren’t related to the health of the company.
If only one corporate insider is selling, or if the stock has run-up quite a bit, it may simply indicate an individual’s desire to pocket profits. But if several corporate insiders are all selling within a short period of time…watch out.
- Sensible valuation.
The stock needs to be at the right price. Seems like a no-brainer, right? Well, this rule is often ignored. Investors can get excited about a hyped stock that seems too compelling to avoid. Even if it’s absurdly overvalued.
This truism bears repeating: If a stock is considerably more expensive than its industry or direct peers, or its valuation is greatly out of whack with its estimated growth, stay away.
- Political connections.
In the political world, it’s all about who you know. And who you pay. I formerly worked as a press secretary in Congress, and I learned firsthand the power of the Gucci-clad lobbyists on K Street in Washington, DC. That’s the street famous for its concentration of political power players and influence peddlers.
Even full federal legalization won’t end all the regulatory challenges pot businesses face. That’s why, when looking for the best pot stocks, I screen for cannabis companies with strong Washington and state-level lobbying connections that can help protect against regulatory impediments and keep their path clear for growth.
- Wall Street attention.
One major indicator a marijuana stock could be primed for takeoff is the amount of attention it’s receiving from Wall Street analysts.
No, I don’t mean the inexperienced meme traders who pontificate about weed stocks on social media and message boards. I’m talking about serious number-crunchers at reputable research firms like Morningstar, Fidelity, and others.
Some highly intelligent, superbly educated folks get paid a boatload of money to go through all the financial details with a fine-toothed comb. When several of these Masters of the Universe get interested in the same stock, they’re usually onto something.
Editor’s Note: I apply the above criteria, and many more, before I even think about adding a pot stock to the Marijuana Profit Alert portfolio.
In Marijuana Profit Alert, I scour the cannabis investment landscape to find the very best marijuana stocks. The publication’s portfolio currently holds 10 equities that are the top pot stocks in the world. Click here to learn more.
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