A still-speculative and budding marijuana trade is looking a bit less risky for Canopy Growth Corp (NYSE: CGC ) on and off the price chart. But if you’re looking to grow some green in your trading account with less risk, go long CGC stock using a time-tested approach with historical precedent. Let me explain.
If you want the security of a blue-chip stock, there’s always the Dow Jones Industrials and its constituents like Microsoft (NASDAQ: MSFT ) or maybe Coca-Cola (NYSE: KO ) to consider. And there’s nothing wrong with that. But don’t forget to make a bit of room in that portfolio for CGC stock — and who knows, maybe it will be a future blue (or green?) chip in its own right.
Late last week, Canopy Growth, one of the marijuana industry’s undisputed market leaders and a name ripe for secular growth, released its latest quarterly results. By some numbers, CGC stock delivered larger-than-forecast losses of 38 cents CAD. But allowing for a bit of operational leeway as Canopy grows its business, by stripping out a mark-to-market debt adjustment CGC saw a very healthy, market-topping profit of 22 cents compared to Street views of a loss of 17 cents.
Admittedly, Canopy’s earnings are a mixed blend, which by more stringent and conservative measures might cause some investors to gag. I get it.
Still, when looking at the other lines that matter, CGC stock’s top-line growth of 282% and squiggly price line on the price chart are looking worthy of a nibble for investors interested in allocating some capital into a leader in this up-and-coming industry.
CGC Stock Weekly Chart
CGC stock has a history of making both bullish and bearish investors ask the question, “what was I smoking?” Bottom line, the emerging and volatile marijuana industry is ripe for lightning-fast, technical about-face moves on the price chart — and shares of Canopy have seen its share of such moves.
Still, if history is any sort of indicator, bullish investors should put CGC stock on the radar for purchase. Currently, shares are putting together a small handle consolidation within its large corrective cup base. That’s bullish in and of itself. But with the broader market in a new uptrend, Canopy’s attractive growth and positioning within the industry, the relatively tight contraction looks even stronger. Additionally, as the handle pattern has also found support from the 50% and 62% retracement levels, a breakout through the pattern high of $51.81 looks even more promising for a future purchase.
I’d reasonably estimate an initial upside price target is Canopy’s all-time-high of $59.25 if shares can manage a breakout. From there, the sky may not be the limit, but a rally to new highs with the possibility for very large price gains out of the corrective cup does have historical precedent on its side. In the event shares break out but then begin to falter, I’d initially set a money stop below $46. That amounts to roughly 11% exposure in CGC stock.
This stop-loss minimizes exposure without playing too close to the vest in a volatile stock. It also gives the chart sufficient technical wiggle room, without marrying to the position if conditions turn south.
Having said that, if you are the marrying type, I’d recommend using a married put strategy, which combines a protective put with long stock as an alternative to a stop-loss in CGC stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits .
More From InvestorPlace
- 2 Toxic Pot Stocks You Should Avoid
- 10 Hot Stocks Leading the Market's Blitz Higher
- 7 Strong Buy Stocks With Over 20% Upside
- 5 Growthy Stocks Trading Below 15X Earnings