Super Stock Blog

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Author: SuperStocker (Page 1 of 16)

Investing in Marijuana and Arbitrage Opportunity in Origin House

The Safe Banking Act held a hearing last week on tuesday AKA the SAFE (Secure and Fair Enforcement) Banking Act. This act was passed on March 26, 2019 by the House Committee. If this act passes the senate, then it will be sent to the president Donald Trump to give the final approval.

President Donald Trump was asked by reporters during before his flight to the G-7 summit in Canada about the bill regarding marijuana. He told them that “I support Senator Garner. I know exactly what he’s doing. We’re looking at it. But I probably will end up supporting that, yes.”. Just like that, Donald Trump is giving huge approval for the SAFE act. There is no reason why he wouldn’t especially since this would bring additional revenue to the USA and it would mean access for more funds to go into marijuana businesses.

Currently, marijuana is considered a “Schedule I” drug in the USA. It is estimated at $10.4 billion in 2018 and has 250,000 jobs devoted to the handling of plants. There are ten states that have legalized marijuana for recreational use and there are 33 states that have legalized it for medical use.

In 2019, New York, New Jersey, Illinois, and Connecticut are up next for legalizing marijuana. Illinois actually just recently passed the act and it will become legal for recreational usage on January 1, 2020. Illinois is also the home of the headquarters of Cresco Labs (CRLBF).

Cresco Labs Inc. (CRLBF) is a publicly traded US cannabis company. They have been very active acquiring and merging with multiple companies to become a powerhouse in the marijuana industry. They hold dispensaries for wholesaling the products and retail stores to sell recreational use and medical use of marijuana.

Earlier this year in April 1, 2019, Cresco Labs Inc. made a partnership to merge with CannaRoyalty Corp. d/b/a Origin House (ORHOF) for an all stock transaction where holders of common shares of Origin House would receive .8428 subordinate voting shares of Cresco Labs for each Origin House share.

However, the merger had a hurdle with the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 which required Cresco Labs to file a notification with the U.S. antitrust authorities and observe a waiting period before completing the transaction. This also gives the U.S. time to review the merger and require certain conditions to allow the acquisition to occur.

On July 26, 2019, Origin House annouced the sale of AltMed where it owned a 5.1% equity interest. Cresco Labs Inc. is prohibited under state law from acquiring additional positions in the Florida market therefore this was part of the conditions to allow the acquisition to occur.

On the closing of July 26, 2019, Origin House closed at a price of $4.79. If the merger were to happen today, a single share of Origin House would convert to .8428 of a Cresco Lab share which would be $6.93. This would mean your stock value would increase 45%!

Right now, you have an amazing and rare opportunity to acquire Origin House shares at a really lucrative arbitrage opportunity with Cresco Labs. This could not have occurred with the U.S. antitrust authorities intervening with the transaction. There are many investors that sold out not being patient with this investment but also not believing that the merger will happen.

On July 17th, Curaleaf Holdings (CURLF) acquired Grassroots for a value of $875 million. Origin House only has a market cap of $331 million. Cresco Labs has an opportunity to use the acquisition by Curaleaf Holdings as an argument to acquire Origin House to remain competitive if the U.S. antitrust authorities still have issues with the transaction.

This is a great opportunity to go long in the marijuana industry. Even if the acquisition does not go through, Origin House will most likely succeed on their own or be acquired by another company as the cannabis industry continues to mature in the future.

Getting Defensive with Treasuries

The stock market has made an amazing run this year. The S&P has had a 14% gain starting from December 23, 2018 where it bottomed. As much as I hear the bullishness of this market and confidence in the market, I have to fathom that we are at turning to the month of May where statistics show that going forward the returns are much less which gives the saying “Sell in May and go away”.

With that knowledge, I plan to trim my stock holdings and start increasing my position into treasuries. TLT is an ETF of the iShares 20+ Year Treasury Bond. It is a defensive position that tends to go up when the stock market goes down. I feel this run is almost over now that the best earnings have been posted this week. I also feel that the long-term trend is heading towards a more bearish market.

Invest in Energy with LPs

I’ve been looking at Energy stocks as I think the quarter will be bullish for them as oil prices go up. As I further my search, I noticed that the smaller companies do pay a substantial dividend. These companies usually have a higher deviation and move up and down more violently which puts bigger risk as well.

On April 18, USA Compression Partners, LP (USAC) announced a dividend of $0.525 for shareholders on record on April 29, 2019. This is a substantial dividend of over 13% per year from their market price. Stifel Nicolaus also gave a price target of $18 a few weeks ago which the stock is close to hitting soon. Also, the past year, six other brokerage companies gave a price target ranging from $18-22 which bodes well for future growth while collecting the dividend.

USAC only has a small market cap of 1.68B. This is much smaller than other LP companies and this gives them substantial chance of being bought out if they can succeed moving forward. Energy Transfer, LP (ET) owns 39.7 million shares of USAC which gives them 23% ownership of the company. You can bet that ET will increase their ownership on success and most likely lead to a buyout.

There are definitely other energy stocks that have potential for success. For example, Energy Transfers has a substantial dividend almost at 8%. I believe the Energy sector will perform this quarter and possibly the next but having a nice 13% dividend gives you some assurance that if things get worse you have a bit of a hedge. You also have the opportunity to invest in some growth with this smaller unknown LP.

NXP Semiconductors Target to $125

NXP Semiconductors (NXPI) dropped over 4% after management stated that they have already spent $3.7 billion of the $5 billion dollars on buybacks from the Qualcomm (QCOM) breakup. Many investors thought that they haven’t or used very little of the buyback since there was never a public announcement until now. The stock price ended Tuesday below $90 which is a very nice buy level. On the same day, Credit Suisse gave the stock a target of $125. This is a 38.9% gain if their analyst is correct. Today, the stock is went below $86 as they received a downgrade by Stifel analysts for the entire industry of analog and mixed-signal semiconductors. This is a great buying opportunity for a short-term issue that the analysts are seeing. Remember, NXP Semiconductors’ chips are in both Apple and Samsung phones. It doesn’t matter who wins the phone industry for them. They have chips in both.

The CEO of NXP Semiconductors and President was on Mad Money with Jim Cramer on Tuesday. He had sold millions of dollars of stock when the stock was over $120 per share. He announced that he was buying at these levels at $90 including his CFO was buying their stock as they believe the company is undervalued. He also showed a processor that integrates with the cloud and internet to take advantage through edge processing. NXPI’s largest customers also include Garmin, Continental, and many car manufacturers since their chips are on the sensors of the cars.

I am long this stock and I believe it will do well in the future. The technicals do indicate that the stock could go down further for those that wish to be more conservative but don’t wait too long!

Facebook at Buy Value!

Facebook, ticker FB, dropped in stock share price yesterday and even further today currently down over 4% today after the hearings with congress yesterday. Much of the drop earlier in 2018 was related to fake users that they had to remove which showed that Facebook has less users than originally stated. Remember, that Facebook also owns Instragram which continues to grow its user base and is valued at $100 billion by Forbes if they were its own separate company.

Also, remember that Facebook is still widely known around the world even if their growth has slowed down in the USA market. They also have a cash holdings of $42 billion that should be factored into your fundamental analysis. FB has a PE of 25 while GOOG is at a PE of 50. That fact alone shows you the undervaluation that the market is giving to Facebook. I believe there is plenty of growth in the stock and the stock price does not factor this in.

At the current price, you can’t go wrong purchasing below $163.

NXP Semiconductors – Great Fundamentals but Poor Technicals

As I mentioned in an early article, NXP Semiconductors (NXPI) is a great buy in a fundamental standpoint.  Qualcomm (QCOM) had to abandon the merger without the approval from China.  As a result, Qualcomm also had to disburse $2 billion in breakup fees to NXP Semiconductor as well.

The breakup caused a huge drop in the price as many hedge funds exited their positions.  Many investment funds thought that the merger would get approved at $127 per share.  Therefore, many hedge funds continue to exit their positions causing a rapid drop in NXPI price.

This has caused the stock chart to look rather poor in a technical standpoint.  In such a poor outlook, I even exited my position in the stock.  I will await a better outlook before coming back into the stock.  I will be looking for a modest uptrend to enter a position again.  This means it will be at minimum 2-3 months before I look at this stock.  However, I do believe in the long-term this should be a winner even for those wishing to just buy and hold.

Twitter to $52!

Twitter (TWTR) is such a hot commodity that news outlets produce quotes from it every single day.  The most popular candidate is the President of the United States, Donald Trump, who tweets often multiple times in a single day.  Each tweet getting quoted by CNBC and being deeply debated for the content that he has given.  Recently, even Elon Musk made the Twitter headlines as he mentioned that his company Tesla (TSLA) has the investors to get bought out at $420 per share.  This caused huge changes in the stock price and even had the stock ticker to be pulled from the market while people digested the news.  It has also caused the SEC and many lawsuits to come to Mr. Elon Musk.

Who know that such a small one sentence tweet can cause so much trouble?  Who also knew that you can cause such an impact?  You even see Twitter becoming the top broadcast to the World Cup with over 115 billion impressions.

In June, Twitter hit a stock price high at $46.80.  Goldman Sachs has a target price of $52 and it got nearly close.  However, a couple missteps and the price of Twitter has fallen over 20% recently reaching a low of $31 but slowly creeping back just almost at $33 as of today.

What happened to the stock price?

First, Twitter had a huge announcement about fake accounts.  The amount of fake accounts was much greater than expected.

Second, Facebook had the largest single-day decline on its stock price after second quarter earnings.  Twitter took a lot of impact being part of the same sector.

However, since these two events, the stock price has steadily and slowly gone up.  This proves that the uptrend is in place.  It also shows we have a safety net that the stock price will stay steady instead of continuing to drop.

Now, let’s do some research on why this is a super stock:

  1. Citron predict a $52 price target at end of year
    1. Their research shows that a similar company in China was recently valued at $75 billion.  Twitter has a current market cap at $25 billion.  With a current valuation, Twitter should be at $90 per share.
  2. Goldman Sachs predicts a $48 price target

I believe Twitter is a great buy at prices below $34.  There’s plenty of upside for this debt free company.  It is already priced for worse-case scenario.

PayPal for the Long-Term

PayPal (PYPL) recently released earnings and guidance late last week.  The results were excellent and even the guidance showed amazing growth for the upcoming quarter and year ahead.  The CEO and CFO mentioned that on their conference call that the guidance shows a strengthening business outlook moving forward.  PayPal mentioned that Venmo, one of the most popular payment platforms, has grown quite a lot and is now showing revenue instead of just engagement.  The company has purchased multiple e-payment platforms to strengthen their business and grow their bottom line.

However, from last friday-tuesday, the PayPal stock price continued to drop with the FANG stocks.  From a price last week over $92, it has dropped to almost $82 in the past week.  This gives you a nice 10% discount from the current price.  If the tech stocks continue to trend down, PayPal will continue to downtrend with them.  However, I believe PayPal is a strong candidate for long-term growth and I expect it to grow leaps and bounds in the future.

I believe PayPal (PYPL) is a great buy anything below $80 and I expect it to be a nice long-term hold.

DexCom Inc

Dexcom (DXCM) is a company that creates technologies to monitor glucose in people with diabetes.  Their stock price has been in a surge since March going from $55 to be over $100 in the past month.  However, their competitor Abbott (ABT) is interested in their same market and is coming up quick with their own technologies to compete.  Just this morning, Abbott’s new technology FreeStyle Libre was approved by the FDA.

This has dropped Dexcom today to as low as $93 per share.  As a company that specializes in glucose monitoring you know that they are advancing technology just like Abbott but you must also know that they already have their technology out in the marketplace helping diabetes patients through many countries.  They also plan to expand globally to help diabetics throughout the world.  An article on SeekingAlpha mentioned a value of $130 for Dexcom.

I give this stock a price target of $110 which should give you a nice 10% gain from the current price.

NXP Semiconductors

NXP Semiconductors (NXPI) was supposed to be purchased by Qualcomm (QCOM) for a stock share price of $127.50.  It was announced yesterday that if China does not authorize the merger then Qualcomm would walk on the deal and give NXPI a $2 billion break up fee and cancel the merger.  Today, China has not said anything and Qualcomm is walking.

NXP Semiconductor will soon have an extra $2 billion in its bank account.  The current rumor is that the extra money will be used for a big $5 billion buyback or even a special dividend.  Either way, it is great for shareholders especially since the stock has plummetted from over $120 to now an undervalued price at $91.

There is certainly plenty of volatility and even a chance that the stock price will go further down.  However, for the long-term investor, this is a great value.  Yahoo analysts give an average EPS for next year at 7.72.  This is a PE of 11.78 at the current price.  This price is indeed a bargain.

There is plenty of growth moving forward for this company.  In June, NXP Semiconductors introduced semiconductors for use in high powered RF products for 5g networks.  The company also is creating a new line of chips that make it easier for companies building AI tools.  If you just look at the present-day, their embedded chips are already used in factories and automobiles.

With a strong base of current customers using their technologies and a nice set of future chips that will grow the company in the future, there is plenty to get excited about with NXP Semiconductors.  I see this stock as a purchase below $92.  I also believe it will make a nice sell at any price at $120 which should happen in 2-3 years.

Disclosure: I am long NXPI and I purchased today.

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