Today, I see a key factor in the cannabis market that both Chief Investment Strategist Adam O’Dell and I look for when we recommend stocks: momentum.
I’ve spent the last several weeks keeping an eye on the Global Cannabis Stock Index (GCI) from New Cannabis Ventures. This index tracks the prices of 37 marijuana stocks.
It’s an accurate indicator of how the broad cannabis market is performing.
You see, Adam and I don’t believe that buy low, sell high is the best way to crush the market.
Instead, we advocate for buying high, and selling higher. This is where momentum plays a factor.
Stocks that are already trending higher have a much better chance of massive returns than those that haven’t hit an uptrend yet.
GCI Momentum Since September
Based on the Momentum Principle (buy high; sell higher), this is an ideal time to look at cannabis stocks.
I’ve found a company that has already started an uptrend — one I believe will crush the market by 3X in the next 12 months.
Tobacco Company Turns to Cannabis
Another trend I’ve spotted is traditional “tobacco” companies moving to cannabis as another revenue pipeline.
This is a business decision as fewer Americans smoke cigarettes each year. (Smoking rates declined by 31.6% between 2008 and 2017 among adults in the U.S.)
At the same time, 80% of states allow cannabis in some form.
The company I’m adding to the watchlist today — Turning Point Brands Inc. (NYSE: TPB) — is expanding beyond tobacco and into cannabis.
Turning Point provides tobacco products in the U.S. and Canada including:
- Cigars.
- Cigarette papers.
- Pipe tobacco.
- Vapes.
One of its brands is Zig-Zag, a popular rolling paper for cigarettes. Another is Beech-Nut chewing tobacco.
Earlier this month, the company entered into an acquisition agreement with Wild Hempettes LLC — a manufacturer of hemp cigarettes.
In July, Turning Point invested $3 million in ReCreation Marketing, a Canadian distribution company that supports various cannabis and CBD products.
Couple that with the company’s own line of vapor CBD products, and it’s clear that Turning Point is jumping into the cannabis sector with both feet.
TPB Stock Starting to Bounce
Shares of TPB have jumped 107% since reaching a low of $14.75 a share in March.
Its 50-day moving average is well above its 200-day moving average, suggesting a continued uptrend.
The stock recently tested some higher lows, but it’s building up steam for the uptrend.
Turning Point’s Green Zone Rating
Turning Point Brands’ Green Zone Ratings on October 12, 2020.
Looking at Adam’s six-factor Green Zone Ratings system, we learn:
- Turning Point ranks 82 overall — meaning only 18% of all other stocks rated are better.
- It ranks above average in Size (78), Quality (75) and Growth (76).
- TPB is in the mid-range for momentum (62), but we can attribute that to its recent fall from a July peak of around $34 per share.
Don’t worry if you missed the first 100%-plus upswing with TPB stock.
These metrics suggest that Turning Point Brands will outperform the market by 3X over the next 12 months!
As you might know, TPB is the fourth stock we’re adding to our Cannabis Watchlist — a feature we just unveiled in September!
Our Cannabis Watchlist Is on an Upswing
Not counting Turning Point Brands, our cannabis watch list is performing well.
Two of our positions are close to 10% gains in a month:
- Schweitzer-Mauduit International Inc. (NYSE: SWM) is a traditional tobacco company that, like Turning Point, is expanding into the cannabis industry. Its stock has jumped 9.5% since Sept. 1.
- PerkinElmer Inc. (NYSE: PKI) tests the quality of cannabis strains for medical use. It has increased 10.2% since I put it on the watchlist in September.
- Scotts Miracle-Gro Co. (NYSE: SMG) was down by around 10% in the middle of the month but has started to rebound nicely. I expect it to cross into positive territory in short order.
All this means is that our watchlist is making steady progress, which is what we’re looking for.
If you invested when I made my watchlist recommendations, congratulations on your gains!
And make sure to check out our YouTube channel where I’ll have my Marijuana Market Update coming out later this week.
I’ll talk more about Turning Point Brands and examine another cannabis stock you’ve asked me to cover.
Until next time…
Safe trading,
Matt Clark
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.