Short-term Pot Stock Picks from Anthony Cataldo
Anthony Cataldo of Seeking Alpha published an article titled “12 Marijuana Stocks for Your Do Not ‘Buy and Hold’ List — Part 1.” As the title suggests, it looks at 12 pot stocks that he thinks may be good for day trading, but are not good bets for investors looking at a long-term buy-and-hold strategy.
The article is the first in a series that he plans to publish over the coming months.
Cataldo also offers some general recommendations for evaluating such stocks. They are as follows:
First, check the state of incorporation. If incorporated in the state of Nevada, proceed cautiously. Note that the state of Nevada has a differentiated product, minimizing disclosure. Minimal disclosure is good for executives and officers, but bad for shareholders. It is the opposite of transparency. Nevada uses their differentiated corporate law to attract those interested in this feature of their corporate law and to generate premium tax revenues from corporate filing fees.
Delaware is the leader in “the market for corporate law,” at about 54% market share, and the tax revenues are so high that they do not need a sales tax and their property taxes are relatively low. Because I live in Southeastern Pennsylvania, I know about the 0% sales tax rate in Delaware and their enjoyment of the lower property taxes made possible by their leadership position in the area of corporate law and their collections of corporate filing fees.
Second, check the firm’s auditor, accountant and legal counsel and their other publicly-traded clients. We are known by the company we keep. This website works well for this research. Merely enter the ticker symbol and examine the “company profile” tab on the left. Click the link for the accountant/auditor and counsel. Look for stop signs, skull and cross bones insignia, and yield signs associated with their client lists. The more warning signs, the more likely that your target stock is engaging accountants and attorneys likely “making a market” in representing scoundrels.
Finally, look at a variety of fundamental measures: (1) Look at the working capital position. If negative, why buy the stock? This represents a failure to maintain a “going concern” assumption. U.S. GAAP requires that these firms restate assets at net realizable value (a conservative approach). (2) Where are cash flows coming from? If negative cash flows from operations are being funded by positive cash flows through stock and debt sales, why are you buying stock in a firm diluting your ownership interest? (3) Look at the number of “paid for” press releases. If they are constantly paying for news releases that appear to be favorable, yet the stock price per share is not rising, consider the possibility that they are selling stock into insider-controlled, news-based rallies, and you, as a shareholder, will never benefit from stock price per share appreciation (i.e., suboptimal trading). (4) A history of reverse splits is, of course, “the kiss of death.” Don’t buy stock in these firms. They pump, dump, reverse split, and repeat the process. They only sell “pipe dreams” and stock.