Shesa's MARCH 2019 INVESTMENT BLOG

MARCH 2019 - INVESTMENT BLOG

By Shesa Nayak

U.S. Stock Market Update  

The U.S stock market continues to roar and approaching towards another new high. On Saturday, March 9, 2019; we witnessed the longest bull market in American history. S&P 500 saw its biggest gain last week since November 2018. According to president Trump the U.S – China trade deal could come in next 3-4 weeks. However, there is no real clarity on the progress being made. If the trade deal is done without many conditions, caveats, all tariffs are eliminated, then we can see a huge rally in the stock market. But failing to strike a good deal could make the market nervous and possibly go south. Now we are in a mixed economy environment where there are many positives, but a few cracks have already started appearing. The volatility has subsidized but we never know when it can emerge like a tremor. This month I am writing about an industry which has tremendous future growth potential. I have provided my extensive analysis for the benefit of my blog readers. Before I venture into the details, let’s take a quick glance of U.S stock market major indexes.

Indexes	Close (12/31/18)	Close FRI (3/15/19)	Change in 2019	% Change in 2019	All Time High	All Time High	Diff %
DOW	23,327.46	25,848.87	2,521.41	10.81	26,769.16	-920.29	-3.44%
S&P 500	2,506.85	2,822.48	315.63	12.59	2,940.91	-118.43	-4.03%
NASDAQ	6,635.28	7,688.53	1,053.25	15.87	8,133.30	-444.77	-5.47%
BTK	4,220.85	5,146.33	925.48	21.93	5360.22	-213.89	-3.99%
NBI	3,251.08	3,587.11	336.03	10.34	4165.86	-578.75	-13.89%

Major Economy News

Will Fed hike interest rate in March?

The next Federal Open Market Committee meeting is just a couple of days away (March 19-20). As I said in my opening remarks some cracks have started appearing in the economy, such as, slowing global economy, industrial production down, uncertainty about trade deal, benign inflation; I do not expect Fed to hike interest rate any time soon unless the economy scenario changes dramatically.

Retail Sales: U.S. retail sales in January were up 0.2% beating consensus estimate of 0% growth. This was a very positive news comparing to negative (-1.6%) decline in December 2018.

Job and Wage Growth: U.S economy added 304,000 jobs in January which was phenomenal comparing to only 20,000 jobs added in December. However, wage growth was dismal. It increased only 3 cents hourly.

China export Tumbled 20.7%: According to data released by General Administration of Customs on March 7, exports tumbled 20.7% from a year earlier in February. According to the economists, the disappointing trade data reflect weaker global demand, particular export to U.S, and distortions from the Lunar New Year holiday.

Q4 Productivity: Came better 1.9% vs. 1.8% expected.

Unemployment Rate: Remains at 3.8%.

New Home Sales: US new home sales declined 6.9% to 607,000 in January, down from 652,000 in December. Possibly it could have been impacted by the government shutdown.

U.S Manufacturing falls in February: The manufacturing output dropped 0.4% in February impacted by decline in output of motor vehicles, machinery, and furniture.

Trade Balances: Grew to -$59.8 billon vs. -58.0 billion expected.

Inflation Rate: The annual inflation rate in U.S slowed for fourth straight month to 1.5% in February. These could be attributed to drop in oil price.

Consumer Confidence: The consumer confidence increased to 97.8 in March from 93.8 in February, beating market expectations of 95.3. In my view, better stock market performance since January and positive progress on trade deal with China could be attributed to this.

Some more important Economy News

For more U.S. Economic news and data please click on the following link: http://www.marketwatch.com/economy-politics/calendars/economic

Source: Marketwatch.com

Amazon takes another step into the medical space

There was a news over the weekend that Amazon will now accept consumers' health savings (HSA) and flexible savings accounts (FSA) card which can be used to buy some eligible medications viz. glucometers, cold medicine etc. As we know, HAS and FSA allows people to contribute a portion of their salary/wages, before taxes, to cover medical expenses that would otherwise be out-of-pocket. Amazon spokesman said, “customers now have the flexibility to use FSA/HSA cards on a wide range of eligible over-the-counter purchases, eliminating the need to pay out-of-pocket or submit receipts for reimbursement”. At this time, there is no exact clarity on what exact medications, but this is a good welcome step and could prove very beneficial for the company in the long run.

What’s happening in U.S – China Trade Deal?

Donald Trump said last Thursday that U.S – China deal could come in next 3-4 weeks but there is no real clarity of the progress being made. There were no more meetings since the beginning of March. However, we don’t know if anything is being internally done by the two governments. It looks to me that stock market could have partially factored in the outcome of trade deal. If a good deal is reached without caveats and conditions, the market will take off to new highs. But primarily it depends whether all tariffs will be abolished and what happens to the other U.S conditions viz. unfair trade practices, intellectual property etc. If not, market may start trending south. A senior White House economic adviser told Fox Business that Trade deal would take DOW up around 2,000 points. However, these could be exaggerations seeing that stock markets have recovered significantly this year. It’s also being heard that U.S. officials are knowingly prolonging talks with China on finalizing an agreement in order to take advantage from a likely stock market rally as the 2020 presidential election heats up. So, we really don’t know how all these politics will play out. Thus, I believe that the market may move in some sort of trading range till the deal is done. If that’s the case, it may provide some opportunity for traders to play around. Let’s see how it goes..

U.S Stock market entered to the longest BULL Market in History

Yes, you heard it right! On Saturday, March 9, 2019, the U.S stock market witnessed the longest bull market in American history.

A quick flashback for the readers

On September 15, 2008, Lehman Brothers filed for bankruptcy, that was the largest in history of bankruptcy. The stock markets were collapsing like rocks. There were doubts whether the banking system will survive! People were so scared that you could see hundreds on queue to withdraw money from ATM machines because they were not sure whether banks will have money in store!! In other words, the whole financial system along with stock markets were collapsing. And most people thought the financial world was about to end. There were "blood in the streets" and almost every equity went on clearance sale. I remember City Bank came to less than $1 a share and Bank of America to about $3 a share. Hardly I had any money left to invest so whatever was there I bought couple of hundred of Citi Bank stocksJ. The S&P 500 came down bottomed at the magic number of 666 points, DOW came down to 7600 in March 2009. It was a horror story and I wish we do not experience such downhill going forward.

Since then it has been 10 years, and we haven't seen an official "bear market". It has been a decade for the stock market boom and that’s the longest in the history. The great bull market reflects slow-but-steady recovery in the economy coupled with record corporate profits and ridiculously easy money, so called “quantitative easing” from central bankers across the globe. U.S started landing bonds/money to many emerging markets at very low interest rates which were consumed by them for future growth. Money became too cheap as central banks started cutting interest rates left and right and started buying the bonds. That’s how the bull market took birth.

How long will this aging Bull Market continue?

Now we are on the 10th birthday of the bull market! The question comes to mind is, how much longer can it last? Obviously, it has been aging and getting older but fortunately there is no expiration date to thisJ. If we see the past, generally speaking “a bull market usually comes to an end when financial excesses go to extremes or there are irrational exuberances”. The .com boom in 1999 and 2000 is a perfect example, wherein stocks were going crazy with a small news or a company making an eCommerce deal or even somebody comes with a new web site! We don't see that kind of maniac today. There are still huge sum of money sitting on the sideline, we have a dovish Fed, expected trade deal, lower unemployment, rising wages, higher consumer confidence and low inflation. However, there are some black spots too in the economy which I have outlined earlier under the “Major Economy News” section of my blog. Having said that, the S&P 500 hasn't closed at a record high since September 2018, which is 4% away. If the broad index closes in a bear market before hitting a new high, history would say the bull market officially ended on September 2018. This bull market could be the longest on record, but the strongest bull market was in 1990s where the S&P went up by 417% according to the report by LPL Financial. Neither the bull market nor the bear market last forever. These are cyclic process.

This bull market is the longest sustained period of economic prosperity without a recession in American history probably since 17^th century! Ultimately someday the law of averages will catch up. At this time, we are neither at the end of bull market nor in the beginning. So, how do we anticipate when can it end? As I said earlier, when there are irrational exuberances, most people start talking that all bad times are gone, and market can’t come down. When we meet people they will start talking about buying this, buying that, people will start chasing the stocks even by borrowing money. People will start taking that they made so much of money in “xyz” stock and recommend others to buy. Most of the people, particularly individual investors like us will get invested, that’s the time market usually takes the U-turn. If we recall .com boom and 2006-08 real estate bubble, then you could see the same phenomena as I described above. Now there is still some fear and lot of money sitting on the sidelines, economy is still strong, and stocks are still not over-valued. Hence, my feeling is that we will come to such a stage sometime, but we are not there yet even though we are 10 years in the bull market cycle. As a matter of fact, in my view, we may have still some more room to go. So, it’s better to reap the benefit by investing when there are still opportunities. But we never when there will be a U-turn. Hence, a word of caution to the wise, it’s always better to be prepared for any eventualities. It’s better to take some profit whenever an opportunity comes but remain invested. This is a principle I always try to remember.

Let’s see how the stocks perform in the 10 months following double-digit starts to the year which we saw this to the year in January? Based on the data available for last 93 years since 1931, here is how it looks?

Year	Two months return	Following 10-Month Return Whole Year)
1931	17.60%	-51.80%
1943	13.60%	10.80%
1975	19.90%	14.40%
1976	11.20%	11.40%
1987	17.90%	-10.80%
1991	11.80%	16.70%
2019	11.50%	? (N/A – will see)

Source: Morningstar

We could see that the median return (on an Avg.) is about 11.4%. For 2019, so far stock markets have been doing pretty well but we won’t know the final return until the end of the year.

Below is the latest Revenue and Earnings projections for 2019.

Quarter	Revenue Growth	Earnings Growth
Q1	4.9% (updated)	-3.4% (updated)
Q2	5.1%	1.6%
Q3	4.9%	2.7%
Q4	6.0%	9.9%

Note: There are some changes in Q1 2019 revenue and earnings projection since my last blog in February.

Major Stock Market Performances across the World so far in 2019

	52 week (% age change)	YTD % Change
DOW	3.62%	10.81%
S&P 500	2.56%	10.72%
NASDAQ	4.2%	12.59%
China Shanghai Index	-7.59%	21.17%
India BSE Sensex	14.61%	5.42%
Japan Nikki	-1.04%	7.18%
Hongkong Hang Seng	-7.90%	12.25%
Germany: DAX	-5.68%	10.67%
UK: FTSE 100	0.90%	7.43%

Sectorial Performances since Year-to-Date (U.S Stocks)

Industrials	15.15%
IT	17.76%
Real Estate	14.44%
Heath Care	6.42%
Financials	11.78%
Energy	14.33%
Materials	9.71%
Utilities	16.83% (TOP)
Consumer Staples	9.98%
Consumer Discretionary	3.97%
Communication Services	14.25%

Source: Merrill Lynch.

Humongous future opportunity in Cannabis Investment

Let me discuss about this month inclusion to my blog portfolio. For the first time, I am including a Cannabis (Marijuana) stock. But before I write about the stock, I am going to write about one of the most exciting and emerging area of investment opportunity that may lie ahead. Why do I think it as an exciting future investment opportunity? What is Cannabis? and why Cannabis is a great investment opportunity? Let me put my analysis.

First of all, what’s Cannabis? If you see Wikipedia, Cannabis is a genus of flowering plants in the family Cannabaceae.  It’s also known as “marijuana,” “pot,” and “weed”.  

Why invest in Cannabis? There are lots of doubts, uncertainty, volatility surrounding Cannabis industry at this time because it’s still not legal based on federal law. So, is it worth investing in this future industry or better stay on the sideline till the dust is settled? Let us take an in-depth look to this. In my view the next major trend in the investment area could be Cannabis! Some analyst predicts that Cannabis could be a Trillion Dollar Industry in next Ten years, now it’s less than $100 billion. Cannabis could potentially disrupt -- alcohol, cigarettes, and pharmaceutical industry. Here is the forecast for legal cannabis spending worldwide:

Year	Projected Growth of legal cannabis spending (in Billion US$)
2016	14.3
2017	16.6
2018	20.1
2019	24.4
2020	29.5
2021	35.8
2022	43.3
2023	52.5
2024	63.5

Source: Statista.com

Please note that above I have mentioned the word “legal”. However, according to Investopedia.com “Total addressable global cannabis is currently estimated to be a $300 billion annual cash crop (legal and other). According to Canopy growth, illegal marijuana currently totals around $200 billion. Please note that it is just not the marijuana rather it includes wide array of end-products, from cosmetics to pet supplements to animal feed to medicine and clothing and beyond. According to Wealthdaiy.com there were ZERO death from taking marijuana. Researchers found that marijuana has the lowest risk of mortality and is safer than the commonly used alcohol and tobacco as well as the rest of the drugs in the study. They determined the risk of mortality by comparing the lethal dose of each substance, including prescription drugs.

Whenever there is a new trend it goes through multiple phases - denial, migration and panic. Currently, we are in the early phase of denial and possibly moving towards migration phase. Today, cannabis is the most popular illicit drug in the United States but many countries and states within U.S have adopted or planning to adopt for medical use, particularly as pain relievers.

Companies are finding wider use of Cannabis other than recreational or medical use. The cannabis could be used in consumer-packaged goods, including beverages, beauty care, herbal, vaporizers, biotech, pharmaceutical and so on. The medical use at this point is mostly for pain killer purpose. However, for wider use it will require clinical proof across numerous indications before accepting the fact that cannabis can be used for other medical purpose. The product offerings would include CBD-infused body lotion, muscle balm, body wash, bath salts, sugar scrub, bath bomb, lip balm, face oil and so on..

There was some positive development on December when president Donald Trump signed the “farm bill”, which was important to the investment community and the cannabis movement. It would also legalize products made from hemp and cannabidiol (CBD) from the hemp plant. it does make hemp federally legal by removing it from the Controlled Substances Act. It also makes federal grant funding available for research, lists hemp as an agricultural commodity. The bill also shifts federal oversight from the U.S. Drug Enforcement Administration to the U.S. Department of Agriculture.

As far as U.S is concerned, the legal cannabis spending projected to reach $100 billion in the US by 2029. Use and possession of cannabis is illegal under federal law for any purpose. However, there are 10 states in U.S (Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington) where marijuana is legalized for recreational use. There are more than 15 U.S states where marijuana has legalized for medical use. Day-by-day many states are legalizing for either purposes. And this is just the beginning. There are many countries where marijuana is legal in some or other way viz. Cananda, Jamaica, Costarica, Ecuador, Peru, Uruguay, Netherland, Spain, Switzerland, Italy, Belgium, Mexico, and many more.

It’s estimated that revenues for US cannabis operators will exceed $5 billion this year. Though, consumption is marijuana is not legal by federal law, U.S treasury Secretary and Federal Reserve Chairman have both stressed the importance of solving this issue. The bans have also been stressing for a resolution because of conflicting law between Federal and State governments. Once this issue is sorted out, “Banks can land money to the Cannabis industry, Wall Street will start initiating coverage and financial institutions can start accumulating huge number of shares of these companies”.  When financial institutions start accumulating the shares, the stock price could explode, we can see many more mergers and acquisitions

Private equity will continue to play an important role for the emerging industry until the federal government legalize cannabis. However, I believe institutions would like to articulate most of their cannabis investments through publicly traded securities, which will allow for industry-standard reporting and regulation, as well as the ability to diversify and scale global exposure. Having discussed so much about Cannabis, now let me discuss about the cannabis stock that I am including in this month’s blog.

Note: The above facts should not be used for anything. I have provided only for informational purpose based on my research. The readers are advised to verify the validity themselves. Why I have put this is to inform the readers that use of Cannabis is growing day-by-day across many states and across the world. Hence, there may be great investment opportunity.

Canopy Growth Corporation (CGC)

Canopy Growth Corporation is a Canadian company engaged in growing, possession, and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps. The company offers its products under the various brand such as Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria. Due to the the ever-widening use of Cannabis, the industry has started getting tremendous attention from the investment communities. Thereby, providing exciting opportunity for the investors looking for better return on investment (ROI) in this emerging hot sector. Companies that execute, will experience successes beyond what most people can possibly think.

Why do I like the stock? There are several companies producing cannabis, particularly large number of companies located in Canada. As I said before, Marijuana is legal in Canada. But why did I choose to include CGC in my blog portfolio? Here are the factors that excites me about this company:

• CGC the biggest pot company in the world with highest market capitalization of $15. 75 billion as I pen this. It’s always safer and better to invest in #1 company because it draws attention of new investors, get more premium on the stock price and safer comparing to its peer.
• The alcoholic beverage maker Constellation Brands (the maker of Corona and Modelo beer) invested $4 billion in CGC which is the biggest cash infusion in the marijuana industry's history. Constellation Brand owns a whooping 38% stake in the company.
• It’s the 2^nd largest producer of Cannabis with about 500,000-525,000 K.G (1.1 million – 1.6 million pound) per year.
• CGC is one of the most popular stock in the Consumer Goods sector for top investors.
• The company is actively developing products targeting all four markets - beverages, opioids, sleep-aid drugs, and veterinary products.
• It has greater financial resources than its peers making it a better and safer investments.
• It’s investing about $100-$150 million to develop a large-scale hemp production facility in New York state and expects to have hemp-based cannabidiol products. This will facilitate capturing U.S market shares in future.
• The company has the best distribution network in Canada and arguably the best overall globally. And with Constellation, Canopy has a partner with a proven track record in establishing successful consumer brands. 
• Canopy and Constellation intend to launch different variety of cannabis-infused beverages in Canada in the latter part of 2019. If the federal law changes then CGC should be able to take advantage of the outstanding distribution channels that Constellation has that give a great competitive advantage from its competitors.
• At present I see larger investors interest with CGC comparing to other players in the market, particularly after $4 billion investment by Constellation Brand.
• It’s estimated that CGC revenue will reach $1 billion annual sales by 2020.

Opportunity: In my view, the emerging cannabis space represents one of the most significant global growth opportunities of the next decade. It’s of paramount importance to choose the right cannabis company for investment. Many of the small and unknown companies could emerge and perish the way it happened during the .com burst. But a few companies could survive and thrive in the long run the way Amazon and eBay did. CGC is poised to be profitable in the long run because of its brand, leadership, partnership, diversification and large amount of available cash and of course partnerships with American companies. Currently CGC is trading $45.89. It had a 52-weeks high of $59.25 which gives us a 22.5% discount to its 52-week high. As I always say, if I like a stock/equity, I keep buying in a phased manner and keep accumulating over a period of time rather than buying at once which looks very risky to me. So, I already have CGC in my portfolio when the stock was around $30 and still keep accumulating whenever opportunity arises.

Risk(s): Marijuana stocks are very highly volatile and risky. One must be extremely careful and allocate some portion of the portfolio, possibly no more than 3-5%. These stocks are driven by news sometime causing enormous fluctuations from time to time. Despite the fact that many countries and U.S states have legalized marijuana, federal government is yet to legalize, hence it carries significant risk. In addition, all stocks are part of the stock market, so when market goes down, nobody is sparred, and momentum stocks are hit the hardest. The stock has already gone up significantly since the beginning of the year. So, one has to invest very carefully rather than jumping with both hands. Having said all that, it also provides a great opportunity for patient growth investors willing to take some calculated risk. I do my due diligence and take a calculated risk and for that matter I am already invested in CGC.

Shesa’s Blog Portfolio (As of March 17, 2019)

Equity	Suggest Price	Current Price	Suggest Date	% Change	My View (see disclaimer)
STOCK (All prices are in USD)
AAPL	51.63	186.12	1/25/13	260%	BUY on dip
BIDU	86.43	170.48	4/18/13	97%	HOLD
FB	47	165.98	11/13/13	253%	BUY (Added more)
TSLA	135	275.43	11/13/13	104%	HOLD
MA	77.18	231.17	12/12/13	200%	HOLD
AMZN	311.73	1607.95	4/12/14	416%	BUY
BABA	67.28	180.97	2/21/16	169%	BUY
EXEL	26.33	24.53	8/20/17	-7%	HOLD
MOMO	32.14	38.5	11/25/17	20%	BUY (Added more)
BRK-B	206.96	204.31	3/18/18	-1%	HOLD
EDIT	36.53	24.29	5/28/18	-34%	BUY (Long term)
JKS	14.04	19.22	7/4/18	37%	HOLD
IQ	26.13	27.02	9/18/18	3%	BUY (Long term)
SHOP	134.81	205.98	11/25/18	53%	HOLD - took some profit
NFLX	297.57	361.46	1/6/19	21%	HOLD
AMRN	17.66	20.33	2/17/19	15%	BUY - TOP PICK
CGC	45.89	45.89	3/17/19	0%	NEW ADDITION
ETF
INCO	34.46	43.04	5/15/15	25%	HOLD
IHF	139.1	172.35	8/16/15	24%	HOLD
XLY	77.76	110.6	8/16/15	42%	HOLD
EMQQ	32.65	32.71	5/21/17	0%	HOLD
KWEB	58.52	46.68	2/11/18	-20%	HOLD
MUTUAL FUND
FBIOX	11.46	21.6	3/1/13	88%	HOLD
PRHSX	47.25	78.12	2/2/14	65%	HOLD
PRMTX	59.45	110.5	12/20/14	86%	Accumulate
MCDFX	12.37	16.22	12/9/15	31%	Accumulate
FSRPX	9.05	15.02	1/15/16	66%	Accumulate
FBSOX	37.32	66.42	3/20/16	78%	Accumulate
FSMEX	43.66	53.96	9/24/17	24%	Accumulate
FOCPX	11.72	11.55	10/21/18	-1%	HOLD
Note: Dividends are not adjusted on the price.

Positions CLOSED since last Blog: NONE.

That’s all for today. Wish you great investing! Stay tuned for my next blog. Thanks for your time. If you want to get alert on my action, then please subscribe to shesagroup_invest@googlegroups.com. You can also join my WhatsApp group, if interested.

Disclaimer: This blog is meant to provide my opinion only. The information provided is to the best of my knowledge but may not be accurate. I do NOT provide any professional recommendation to buy/sell any stock, ETF, mutual fund, or any other security(s). As an investor, it’s your hard-earned money and you decide what is best for you. The above are merely my own opinions and some of the information provided may not be accurate. Please contact a professional money manager to buy/sell any security. I do not charge any fees or commission by writing the blog except anything from Google AdSense. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow. Anybody buying or selling the equities mentioned here would do it on their own risk.

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