It’s funny how, if you stick around long enough, eventually the “conventional wisdom” gets proven wrong.
One thing the “conventional wisdom” tells us that, in times of turmoil and uncertainty, an investor’s best bet is to stick with safety stocks like the Consumer Staples sector.
Now, I’m looking for significant growth out of my investments, so those stocks aren’t always my style, anyway. But I do freely admit that the United States – which has been the oasis around the world for years now – is a consumer-driven economy. So, it stands to reason that you’ll want to invest where consumer spending is likely to flow.
However, labels can be deceiving. For example, you might think of Anheuser-Busch InBev (BUD) as a classic Consumer Staples stock. Yet, when you dig into the company’s numbers, it turns out that its beer brands like Corona, Budweiser, Modelo and Michelob might not be such “staples” after all.
In its earnings report last Friday, we learned that Anheuser-Busch’s revenues rang in at $13.2 billion, well below analyst expectations for $13.8 billion. That was a tepid gain of just 2.7% year-over-year, and it included falling sales in China and the United States.Quarterly earnings were right in line, at $1.22 per share, but the company lowered its earnings projections for the full year. All in all, BUD stock has taken a significant hit of over 10% on the news.
Now, I’m a long-term investor. And if a company meets my indicators of strong profit potential ahead, I’m willing to “buy the dip.” However, when you run BUD through my Portfolio Grader, the results aren’t really anything to raise a glass to:
Besides sales and earnings growth (or lack thereof), you also want to look at operating margins, cash flow, analyst revisions, and the company’s historical track record of beating (or missing) these expectations. Across the board, Anheuser-Busch gets a “C” on its fundamental factors.
The reality is that consumer tastes are changing. Mass-market beers are being shelved, so to speak, and craft beers have become the growth market.
To its credit, Anheuser-Busch is investing in acquiring these niche brands, like Elysian Brewing Company, Devils Backbone and Goose Island, adding Platform Beer Company (of Cleveland, Ohio) to the list in August. It’s also moving into one of the hottest consumer trends of the day: cannabidiol (CBD).
As soon as December, Anheuser-Busch and its cannabis partner, Tilray (TLRY), intend to launch non-alcoholic CBD beverages in Canada. CBD – the non-psychoactive, anti-inflammatory “cousin” of marijuana – was also legalized in the United States this year. Since then, it’s enjoyed a surge of popularity. In the last seven months, CBD products have sprung up everywhere from GNC (GNC) and The Vitamin Shoppe (VSI) to CVS Health (CVS), Ulta Beauty (ULTA) and even Kroger (KR) grocery stores.
That being said, I don’t view this as the right time to invest in CBD, and here’s why. The industry still has a lot of “growing up” to do, in that the quality is still very mixed. The U.S. Food & Drug Administration (FDA) is still working on its regulatory guidance, and until the rules of play are established, I don’t want to go near these companies.
It could very well be that, in the long term, the legal cannabis industry does become more about these CBD oils and CBD treatments for joint pain and the like. But, in the meantime, these products will require a lot of research-and-development costs for a very uncertain future. That’s especially true of CBD beverages, where taste is a major hurdle to overcome. So, when companies like Anheuser-Busch are struggling with earnings already, it could take awhile for this to become an attractive investment.
In the meantime, I’ve found a very different stock that does meet my requirements for a great growth investment. It’s a much smaller company – but at Breakthrough Stocks, we’ve found that small-caps often make the best growth plays, if it’s a high-quality company.
So, if you’re looking for smart plays on marijuana legalization, then Innovative Industrial Properties (IIPR) is a more prudent way to go.
IIPR is actually a real estate investment trust (REIT). As such, it is legally required to pay out 90% of its taxable income to investors. That gives IIPR a very compelling dividend yield of 4.6%. So, it might not be a “consumer staple,” but its stock does yield almost twice what Anheuser-Busch does.
Most importantly, IIPR has carved out a very lucrative niche in an area that is highly regulated and well-established: medical marijuana.
Innovative Industrial Properties is, essentially, the landlord for medical cannabis companies. In fact, it is the only publicly traded REIT that serves the pot industry. Founded in late 2016, IIPR partners with experienced cannabis growers to manage their real estate properties, which allows them to focus solely on production and helping patients receive treatments.
Currently, Innovative Industrial Properties works with 26 cannabis growers in the U.S., including the states of California, Maryland, New York, Arizona, Colorado, Illinois, Massachusetts, Michigan, Ohio, Minnesota and Pennsylvania. All of the properties include specialized industrial and greenhouse facilities, and are 100% leased to licensed medical-use cannabis growers.
IIPR is growing rapidly. In fact, it just made another acquisition a couple of weeks ago, for a 156,000 square foot property in Warren, Michigan, where LivWell Holdings will cultivate and process medical marijuana.
As for the investment potential, IIPR gets top marks on several of the most important factors in my stock-picking system:
For the third quarter, earnings are expected to soar 128.6% year-over-year to $0.48 per share. That’s up from $0.21 per share in the same quarter a year ago. And analysts have increased earnings estimates in the past month (which means a quarterly earnings surprise is likely). No wonder IIPR gets an “A” grade for Earnings Growth and Analyst Earnings Revisions.
The stock also enjoys an “A” for its Quantitative Grade. This reflects my proprietary measure of buying pressure. Even in a new, fairly volatile industry, like marijuana, the best stocks will enjoy an influx of major cash on Wall Street. These are the stocks with the best momentum – and these are the stocks to own for major profits going forward.
Note: Ultimately, spotting the right investment is simple. You buy when the company achieves a Quantum A …and you sell when it disappears.
You don’t fall in love. You certainly don’t fall for hype. You may return to that stock someday – but with my system, you know exactly when it’s time to take profits off the table.
That’s why I always say: There’s no luck and very little skill behind my own success – just hard work. And the result: a proprietary system for picking the best investments of the day. It’s made it easy to nab market-beating returns – for double your money (or better).
I’m eager to show you what my system is picking up now. Click here to find out more.