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Marijuana legalization initiatives will be on the ballot in a number of states in November.

Though there’s no end in sight for the coronavirus pandemic, in some ways, life goes on somewhat as usual. The U.S. presidential election is coming up in less than three months, and beyond the presidential and legislative races, the question of state-level marijuana legalization is on the agenda again. In New Jersey, Mississippi, and South Dakota, cannabis legalization initiatives have already officially qualified to be voted on in November, while in Arizona, Montana, and Nebraska, officials are currently reviewing the signatures submitted by groups attempting to get their proposals on the ballot.

Efforts to qualify legalization initiatives for the ballot in other states, among them Nebraska, Missouri, and Oklahoma, were essentially suspended earlier in 2020 due to COVID-19.

Cannabis companies have garnered a lot of attention this year following the spikes in sales that accompanied the pandemic. Though there’s still no clarity about when Congress might start weighing legalization at the federal level, adding new states to the legal marijuana market could lift companies including Green Thumb Industries (OTC:GTBI.F), Curaleaf Holdings (OTC:CURL.F), Cresco Labs (OTC:CRLB.F) and Canopy Growth (NYSE:CGC) to new highs.

Green Thumb and Cresco Labs are taking advantage of recently expanded opportunities

Green Thumb’s revenue rose 268% to $103 million in its first quarter, largely thanks to the diversification of its operations. It has 42 retail cannabis stores across 10 states — Connecticut, Massachusetts, Nevada, Florida, New Jersey, New York, Ohio, Illinois, Maryland, and Pennsylvania. The company reported EBITDA (earnings before interest, tax, depreciation, and amortization) of $25.5 million.

Green Thumb remains strong in its home state of Illinois, which made recreational cannabis legal on Jan. 1. June was the strongest month there so far, with legal sales from all operators in the state hitting a total of $46 million. Green Thumb also plans to take advantage of the tourist cannabis market in Nevada — it opened a new store in Las Vegas in June.

In the months since it delivered its first-quarter results, Green Thumb has opened six more stores; it’s now the proud operator of 48 retail locations in 12 U.S. states. With the licenses it already holds, it has the potential to grow its footprint to 96 locations in total. So you can imagine the potential surges in revenue and profits Green Thumb could produce once more states join the legal cannabis list and the company expands into those new markets.

By contrast, Illinois-based Cresco Labs’ strength lies in the fact that it chose to focus on its home state and two other key markets — Pennsylvania and California.

On July 13, it opened its eighth dispensary in Illinois — Sunnyside South Beloit — and its 18th in the U.S. Its financial stability is evident from its rising revenue and profits — in Q1, its top line grew 215% year over year to $66.4 million and its EBITDA hit $3.2 million.

Curaleaf targets key markets with more cannabis demand

Curaleaf is targeting some major cannabis markets. Recently, it completed its acquisition of Grassroots, which will give it a huge footprint in California, with its population of 40 million. Recreational cannabis is legal in the state, where the company now has “135 dispensary licenses, 88 operational dispensary locations, over 30 processing facilities, and 22 cultivation sites with 1.6 million square feet of current cultivation capacity.”

Curaleaf also enhanced its position in New Jersey in July by acquiring Curaleaf NJ, which had previously been required by state law to operate as a nonprofit.

At the moment, New Jersey limits cannabis use to medical purposes, but recreational legalization is on the ballot this fall, and polling suggests it’s likely to pass. Recently, Curaleaf also debuted an alternative form of cannabis medication — sublingual tablets. The company is expected to roll them out between before the end of the month, and they’ll be available to medical marijuana users in 28 dispensaries in Florida. Curaleaf’s revenue grew by 174% to $96.5 million in its first quarter , while adjusted EBITDA came in at $20 million.

Canopy Growth is all set to gain ground in the U.S. market

Unlike the other companies mentioned here, Canada-based Canopy Growth hasn’t seen dazzling revenue growth or even profitability yet — its revenues rose 15% in Q1 as it booked an EBITDA loss of 102 million Canadian dollars — but its growth strategies look promising.

It has an agreement to acquire cannabis company Acreage Holdings, but that will only happen after the U.S. federally legalizes marijuana. Once the deal closes, it will give Canopy access to Acreage’s North American stores in which to sell its innovative cannabis derivative products — vapes, beverages, edibles, and chocolates, among others.

Canopy Growth has a partnership deal with lifestyle guru Martha Stewart to launch CBD-based products for people and pets in Canada and the U.S. It also has a partnership deal with alcoholic beverage giant Constellation Brands, and plans to launch cannabis-based sports beverages through its BioSteel Nutrition acquisition.

Keep an eye on them

Profitability is not an issue for the three U.S. cannabis companies discussed here, and they all have strong balance sheets. At the end of the first quarter, Cresco Labs boasted $68.6 million in cash and cash equivalents, while Green Thumb and Curaleaf had $71.5 million and $176.4 million of cash and cash equivalents on the books, respectively. Therefore, they should have the resources necessary to expand in any U.S. states that legalize cannabis in 2020 or expand from medical use only to full adult-use legalization.

We will likely learn more about their growth plans for the near term when they deliver their next quarterly reports: Curaleaf, Cresco Labs, and Green Thumb will report on Aug. 17, Aug. 20, and Aug. 12, respectively.

Meanwhile, Canopy Growth isn’t lagging when it comes to capital — Constellation Brands’ large investment in the Canadian company has put it on safe footing for now. It hasn’t hit profitability yet, but if its growth strategies play out according to plan, that could happen soon. It will report its fiscal Q1 2021 results Aug. 10.

I would suggest that the time is right to scoop up some shares of these companies. Even if one factors the potential for states to expand the legal market out of the equation, Cresco Labs, Green Thumb, and Curaleaf are the three strongest players in the cannabis space.

Author: Sushree Mohanty

Source: Fool: 4 Cannabis Stocks Poised to Profit From Legalization Votes

A forensic study on bitcoin’s 2017 boom has found that nearly the entire rise of the digital currency at the time is attributable to “one large player,” although the market manipulator remains unidentified.

Finance professors John Griffin and Amin Shams – instructors at University of Texas and the Ohio State University, respectively – analyzed over 200 gigabytes of data for the transaction history between bitcoin and tether, another digital currency. Tether is an asset known as a “stablecoin,” which has its trading value connected to the dollar.

The professors’ study found that tethers being traded for bitcoins revealed a pattern.

“We find that the identified patterns are not present on other flows, and almost the entire price impact can be attributed to this one large player,” Griffin and Shams wrote. “We map this data across both blockchains and find that the one player or entity (labeled as 1LSg throughout the paper) is behind the majority of the patterns we document.”

Griffin and Shams were able to follow the clusters of data to a source: “One large account at Bitfinex.” The digital currency exchange Bitfinex is one of the largest in the world. The study found that, through Bitfinex, the single player was able to manipulate demand for bitcoin via “extreme” flows of tethers. The Wall Street Journal first reported on the updated study’s results on Monday.

The manipulation occurred as bitcoin rose to an all-time high of nearly $20,000 in late 2017, the study found. Bitcoin traded at about $9,300 on Monday.

“One of the SEC’s top worries is that crypto is subject to manipulation. This study appears to lend credibility to that argument,” Cowen analyst Jaret Seiberg said in a note on Monday.

The study comes after an analysis published in March found that 95% bitcoin spot trading is faked. The survey, created by cryptocurrency asset manager Bitwise for the SEC, found that only $273 million of about $6 billion in average daily bitcoin volume was legitimate.

Cowen said Griffin and Shams’ study will likely add even more scrutiny of bitcoin and cryptocurrency at large, especially from regulators and lawmakers.

“We see this as further souring Washington on crypto and believe it is negative for efforts to launch crypto ETFs and for Facebook to launch Libra,” Seiberg added.

Libra is Facebook’s cryptocurrency project, which has seen several major backers drop out in the past month.

While the latest study doesn’t identify the manipulator, the professors suggest those running Bitfinex either knew of the operation or were even possibly assisting the scheme. Bitfinex’s general counsel Stuart Hoegner told the WSJ that the study “lacks academic rigor,” saying that “it is the global rise of digital currency that has driven the market’s demand for tether.”

Both Bitfinex and Tether Ltd., the company that controls tether, are owned and operated by the same people. The WSJ noted that both companies are under investigations for alleged fraud by the Department of Justice and the New York Attorney General.

Author: Michael Sheetz

Source: CNBC: A single anonymous market manipulator caused bitcoin to top $20,000 two years ago, study shows

Value stocks are at a crossroads after years of underperformance. Exchange-traded funds (ETFs) focused on stocks that historically have been underpriced relative to their fundamentals are seeing a resurgence of inflows while their higher-growth momentum counterparts start to lag, suggesting a major reversal in investor preferences is underway, according to a recent story in the Wall Street Journal.

“We are trading what we think are the early stages of a reversal, and watching out for a bigger reversal that can last for many years,” said Hugo Rogers, who oversees $5 billion as chief investment strategist at Deltec International Group.

What it Means for Investors

One of the biggest value-focused ETFs tracked by FactSet passed $50 billion in assets under management last month, a record, and gained 4.9% over the month of September. Meanwhile, the S&P 500 rose just 1.7% and one of the biggest momentum-focused ETFs fell 1.1% over the same period. Some of the big, momentum-driven technology stocks like Netflix Inc. (NFLX) and Facebook Inc. (FB) are showing signs of weakness having underperformed over the past month.

The divergence in performance between value and momentum reached its widest level since 2010 in September as value stocks outperformed momentum stocks, indicated head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch Savita Subramanian in a recent report. She added that since 1986, whenever the negative correlation between value and momentum has been as wide as it is now, value has outperformed 77% of the time over the following 250 days, according to Barron’s.

KEY TAKEAWAYS

Value outperforms higher-growth momentum stocks in September.

Divergence in performance hit widest level in nearly 10 years.

PE-ratio spreads between value and growth at widest level since 2001.

Growth stocks suffering from overcrowding.

Lisa Shalett, chief investment office of Morgan Stanley Wealth Management, also sees “a massive rotation away from growth-style factors toward value-style” is underway. She believes part of the reason for the shift may be technical, with investors unwinding positions in overcrowded growth stocks.

The spread between the trailing price-to-earnings ratio (PE ratio) of growth and value stocks on the Russell 1000 Index has not been as wide as it is now since the dot-com crash of 2001, according to TCW Group Inc.’s Diane Jaffee, who oversees a $3.7 billion value-focused fund. The fund has received a spike in inquiries from pension and endowment funds.

Wolfe Research recently found that momentum stocks haven’t been this widely held since 2016. As a result, investors my have concluded these stocks are overcrowded and are rotating out of them before a chaotic selloff.

Looking Ahead
To be sure, Subramanian says that two key catalysts are needed for value outperformance to continue—a recovering economy and a acceleration of corporate profit growth. She and many bulls are optimistic that the economy and profits will start to pick up early next year. If that fails to happen, value stocks could return to their status as perennial losers.

Author: Matthew Johnston

Source: Investopedia: Investors Begin Rush to Value Stocks and ETFs in Big Switch

Apple stock is flirting with new all-time highs. When will AAPL get there?

Apple (AAPL – Get Report) stock continues to churn higher. While finishing in the green by just 0.28% at $224.59 in Tuesday’s trading session, shares were as high as $228.22 on the day, just a stone’s throw away from its former all-time high.

The stock is drawing mixed fanfare, though.

Apple stock hit its former all-time high at $229.90 almost one year ago, on Oct. 3, 2018. Investors like to sniff out stocks that are performing well, and since the August lows, Apple stock has certainly turned some heads, up ~18%.

So why the concern?

Last year also featured the stock market and Apple trading near its highs, with the former serving as a beacon of stability. Even once the market got choppy, Apple stock held firm for most of the month.

That’s not to imply that the market — or AAPL stock for that matter — will implode because shares of the iPhone maker are doing well. Just that we’ve seen this rodeo before and it may have some investors cautious moving forward. Let’s take a closer look at the charts.

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Trading Apple Stock

It’s worth pointing out that the chart above adjusts its pricing for the dividend. On that basis, Apple stock has an all-time high at $229.90. On an unadjusted basis, it’s up at $233.47.

So can Apple stock go on to make new all-time highs? Certainly.

It’s a little concerning that shares rallied up toward the $229 level and swiftly backed away from it on Tuesday. However, that likely has more to do with the decline in the overall market. As long as AAPL stock holds above its 20-day moving average, it’s hard to get too bearish on the name.

In fact, so long as Apple stock is north of the $215 breakout level and the 50-day moving average, there’s not much reason to get overly negative on this one.

Below those marks brings up the 23.6% retracement near $209, as well as the 38.2% retracement at $195.68. Just below is the 200-day moving average currently at $188.85.

I’m looking for Apple stock to build above of $225, a tough level over the past 12 months, and eventually push through $230. That will cement a move to new highs and trigger a likely run to $233.47 — its unadjusted 52-week high. Above that, and Apple stock can gain more momentum.

Remember, while the recent rally may seem overdone, the RSI (blue circle) does not indicate an overbought condition, while Apple stock is roughly flat year-over-year. That’s a lot of consolidation and could help spring the next move higher.

Author: Bret Kenwell

Source: The Street.com: How Apple Stock Can Reach New All-Time Highs

Cheap stocks often aren’t ‘really’ cheap — but these 10 are

Cheap stocks aren’t always just cheap. Quite often, in fact, they’re cheap for good reason. And so focusing solely on valuation is an often-imperfect method for finding quality stocks to buy.

In many cases, debt is an issue. Declining businesses can look cheap and — as seen in sectors like pharmaceuticals and retail — get much, much cheaper. Simply looking at stocks based on a solitary price-earnings (P/E) metric is not sufficient due diligence. It’s a good way to fall into value traps, not necessarily to find value plays.

That said, there are opportunities in cheap stocks. Considering the rash of cheap stocks within the marjiuana sector, legendary pot investor Matt McCall’s five-part Masterclass is a must-watch for investors serious about investing in small companies for big growth. Sometimes, the market incorrectly assumes a declining business will decline forever and ignores turnaround potential. Hidden assets can play a role. And sometimes, attitude toward an entire sector leaves investors selling off indiscriminately — and tossing potential winners in the process.

These 10 cheap stocks to buy all trade at less than 10x forward earnings — for those kinds of reasons. But, importantly, that single data point isn’t the only, or even the best, reason to buy. These are good companies available cheap — in other words, perfect fits for a value portfolio.

Ford Motor Company (F)

To be sure, there is a “value trap” argument for Ford Motor Company (NYSE:F) stock. In fact, I made precisely that case a few years back. “Peak auto” remains a big concern for both Ford and rival General Motors (NYSE:GM). The risk of a macroeconomic downturn — and an associated decline in sales — also hangs over F stock.

But much has changed. For one, F stock has become cheaper, touching a nine-year low late last year before a recent rally. Second, Ford has changed its strategy. As I wrote this week, it’s focusing on pickups, SUVs, and electric vehicles. The decades-long effort to win in sedans has been ended. That should boost both earnings and cash flow, as Ford stops throwing good money after bad.

A 6x forward P/E multiple and a 6%-plus dividend yield both suggest that investors don’t necessarily trust that strategy. It’s certainly possible the market is right: this is not a risk-less trade, even with low headline valuations. But there’s still an intriguing potential path for Ford, who only needs to keep earnings reasonably intact to drive big upside from $9-plus. For investors willing to back the strategy and management, F stock looks attractive at these levels.

If you’re interested in other high-yield investments, our resident income investing expert Neil George has discovered a system that lets you earn $197 per hour … whether you’re taking a walk in the woods or spending time on the golf course.

Turtle Beach (HEAR)

Gaming headset manufacturer Turtle Beach (NASDAQ:HEAR) has become one of the bigger battleground stocks in the market. To bulls, the cheap valuation — just 9.3x 2020 EPS estimates — and the likely growth of gaming forward make HEAR stock ridiculously cheap.

To bears, Turtle Beach is a bit of a flash in the pan. The launch of Fortnite last year sent Turtle Beach sales soaring — and, at one point, led HEAR shares to gain a stunning 1,700%. But that growth wasn’t sustainable. Turtle Beach stock started falling last August — and kept falling after initial 2019 guidance suggested a year-over-decline in revenue and profits.

So far, I’ve taken the bullish side here. I’m long HEAR through a hedged position, and I called it one of the best small-cap stocks to buy back in July. 2019’s decline in sales shouldn’t have been a surprise – and isn’t really a problem. 2018 did see a huge spike in sales but replacement of those headsets should drive revenue and earnings in 2020 and beyond.

Meanwhile, Turtle Beach has cleaned up its balance sheet, moving from a spot where bankruptcy was a possibility to a net cash position after Q1 of this year. The replacement cycle should kick in next year, and when it does, I expect HEAR to rally again.

Dell Technologies (DELL)

Dell Technologies (NASDAQ:DELL) is another member of my personal portfolio — and another stock where bears seem to make a reasonable case. After all, PCs are likely in secular decline. And Dell closed its fiscal second quarter with some $52 billion in debt.

So yes, DELL looks cheap, at 7.3x FY21 (ending January) consensus EPS. But rival HP (NYSE:HPQ) has a cleaner balance sheet, and trades at 8.2x next year’s earnings. In that context, DELL’s valuation hardly seems out of line.

But there’s another asset here: Dell’s 80.8% ownership of VMWare (NYSE:VMW). That asset is worth well in excess of DELL’s current market capitalization.

Even accounting for debt, ‘core’ Dell trades for something like 2x EBITDA. And that’s with some strength outside of PCs, in areas like servers and storage. Exposure to the non-VMWare part of the business can be created by hedging out VMW (as I’ve done).

Sum of the parts arguments often are risky, and there may be a so-called “Michael Dell discount” in play after the contentious resolution of Dell’s former tracking stock. Still, the valuation here incorporates far too much risk. DELL looks cheap from a distance – but looks even cheaper up close.

Blucora (BCOR)

It’s not entirely clear what has happened to Blucora (NASDAQ:BCOR) stock. The stock was at $36 in May; it now trades at $22.

The two earnings reports since have been fine, as far as they went. Both came in ahead of Street expectations. Neither was necessarily dazzling, but full-year raised guidance was raised modestly after the Q2 report last month.

The company’s tax business is performing well, with revenue up over 12% year-over-year in the first. Continued gains at larger rival Intuit (NASDAQ:INTU) suggest the market has little worry about the industry as a whole.

Blucora recently added 1st Global to build out its wealth management segment, and continues work on cross-selling between the two. Leverage has come down, and the Street sees 20%-plus EPS growth next year, thanks in part to incremental contributions from the recent acquisition.

And yet BCOR shares are trading at a 21-month low — and less than 9x 2020 consensus. Admittedly, the company’s “true” earnings power is somewhat inflated by tax benefits from past losses (when the company was known as Infospace, a dot-com bubble darling). Still, the market is valuing Blucora like its growth is over. There’s not much reason to see that as being the case at the moment.

Morgan Stanley (MS)

Many financial stocks like Morgan Stanley (NYSE:MS) seem to go in the “cheap for a reason” group. Lower rates will pressure net interest margin. Cyclical fears hang over the group — particularly for an investment banking-heavy business like Morgan Stanley. Amid an IPO boom, it would seem like revenue in that key business would have nowhere to go but down.

And so Morgan Stanley stock, at 8x 2020 earnings, looks cheap — but perhaps not compellingly so. After all, Bank of America (NYSE:BAC) is at less than 10x forward EPS. Goldman Sachs Group (NYSE:GS), like Morgan Stanley, trades at a modest discount to book value. It doesn’t take a financial crisis, but rather just a normal recession, to bring both asset-based and earnings-based multiples back in line.

That said, MS stock is a truly interesting pick in a group that has traded sideways for some 20 months now. In both investment banking and wealth management, it’s performing well. (It’s taken share from Goldman, most notably.) Rates are low but really can’t go much lower. Cyclical fears may be overstated. A 3.3% dividend yield helps the cause, and a historical P/E over 12x provides cushion in a downturn.

Morgan Stanley stock isn’t a likely double, but this is a durable franchise at a historically low price. That’s a nice combination, even considering the risk involved.

Capri Holdings (CPRI)

There is no shortage of retail and apparel stocks that look cheap right now. Capri Holdings (NYSE:CPRI) is no exception. The owner of Michael Kors, Versace, and Jimmy Choo has seen its stock get hammered of late, with CPRI touching a 7-year low last month before a recent rally.

Even after the gains, CPRI still trades at 6x-plus forward earnings. By the depressed standards of the sector, that’s still a very low multiple. Debt is an issue – many apparel plays are net cash-positive, but a manageable one. And both Choo and Versace should grow, while Capri hopes to keep margins for Michael Kors reasonably intact.

There are risks here. Retail has been a graveyard for investor capital. Versace angered Chinese consumers this summer with a T-shirt. The “cheap” argument has held for CPRI for years now; each time the stock has gotten cheaper. Even the rally of late might be a “dead cat bounce”, rather than a sign of a change in investor sentiment.

Even considering those risks, however, this is an intriguing play. Margins are among the best in the industry. High-dollar brands generally do better in a recession. And 6x forward earnings leaves a lot of room for error — and suggests a lot of free cash flow to pay down debt. I wouldn’t expect the bounce in CPRI to necessarily continue at the same pace, but I’d expect that a year from now CPRI has gained nicely from a current price around $32.

Bristol-Myers Squibb (BMY)

An investor considering Bristol-Myers Squibb (NYSE:BMY) at the moment needs to remember a key fact. Buying pharmaceutical stocks just because they’re ‘cheap stocks’ has been a dangerous strategy in recent years. Mallinckdrodt (NYSE:MNK), Teva Pharmaceuticals (NASDAQ:TEVA), and Lannett (NYSE:LCI) are among those sector plays that have turned out to be nasty value traps after using debt to drive growth.

That history alone shows that BMY stock is not a risk-free trade. It’s levering up to acquire Celgene (NASDAQ:CELG), a deal of which the market hasn’t seemed particularly fond so far. (BMY touched a six-year low in July before a recent rally.) The pharmaceutical industry as a whole has not been the defensive industry it once was. Even leaders like Pfizer (NYSE:PFE) and Merck (NYSE:MRK) have struggled on occasion.

That said, as I wrote last month, for investors wise to the risks BMY is an intriguing play. Even after the rally, that’s still the case. An 8x forward P/E multiple means performance doesn’t have to be perfect. Celgene has “patent cliff” worries surrounding its cancer treatment revlimid, but still has a healthy portfolio outside that drug.

This isn’t a “safe” dividend play, as many large-cap pharmas are. There’s risk here. But there’s reward, too, if Bristol-Myers management is even close to on point with the strategy going forward.

Investing in high-risk, high-reward companies is how Matt McCall made a name for himself among tech investors. His essay on “keystone” technology and how to invest for groundbreaking technologies before they’re newsworthy, is an important cornerstone for any investor with a “risk on” portfolio.

CVS Health (CVS)

Pharmaceutical manufacturers aren’t the only ones having a tough go of it of late. Pharmaceutical retailers like CVS Health (NYSE:CVS) have taken a big hit. CVS stock touched a nearly six-year low in March, and retested those levels several times over the following few months.

As I wrote in July, seemingly everything was going wrong. Insurers were pressuring reimbursement rates — and generic drug savings weren’t (and aren’t) enough to offset that pressure. Front-end sales, perhaps due to competition, have come down. Amazon.com (NASDAQ:AMZN) looms due to its acquisition of PillPack. Even the company’s acquisition of Aetna for a moment seemed like it might be reversed.

It was precisely that torrent of bad news that set up an intriguing contrarian case. And CVS stock has rallied some 19% from the lows. But there’s still a case for more gains. Pharmacies seem to be adapting, with even long-struggling Rite Aid (NYSE:RAD) posting decent results this week. The Aetna integration should provide cost and revenue synergies for several years. And at barely 8x forward earnings, CVS stock has room for further multiple expansion.

As with BMY, there are risks. The pharmacy model is being pressured. But if CVS can even muddle through, its stock should gain.

Callon Petroleum (CPE)

Back in April, I called out wildcatter Callon Petroleum (NYSE:CPE) as an attractive play on shale oil. Simply put, it’s been an awful call. CPE stock is down about 40% — for one key reason.

In July, Callon announced its plans to acquire Carrizo Oil & Gas (NASDAQ:CRZO). The market did not like the deal — and still doesn’t. CPE stock has dropped 36% since the deal was announced.

As a result, John Paulson, who owns 9.5% of the company, has urged fellow shareholders to oppose the acquisition — and sell itself instead. CPE stock bounced on that disclosure — but has since given back its gains.

That leaves CPE as a potentially intriguing special situation play. If the deal breaks, the stock no doubt rises, with or without a sale. At this point, if the acquisition is approved, a 4x forward P/E might be enough to offset concerns about debt and oil prices.

This isn’t a “heads I win, tails I don’t lose much” play — but it’s a higher-risk version of that. At this point, with CPE stock down so far, either outcome could lead to upside, making it one of the more interesting opportunities in shale (though admittedly I’ve said that before).

GMS (GMS)

Wallboard distributor GMS (NYSE:GMS) is another stock in which I have a long position — and another I’ve recommended in the past. Back in early October, I called GMS a small-cap stock that could double. It’s come close, gaining 95% over the past year.

The rally might not be done. The gains in GMS stock have been amplified by debt on the balance sheet – and what were almost preposterously low multiples relative to peers. Even after the sharp rally, the stock still looks cheap next to peers like Beacon Roofing Supply (NASDAQ:BECN).

Meanwhile, debt continues to come down, lowering interest expense and boosting the share of equity in the valuation of the entire business. Fiscal first quarter earnings last month were strong, removing any gross margin concerns.

Valuation is a bit more reasonable now, admittedly. Investors need to watch the housing cycle, particularly in Canada, where recently acquired Titan has its base of operations. I certainly don’t expect GMS to double again, but I still see a path toward 20%-plus upside over the next twelve months, thanks to deleveraging and a valuation that finally reflects a deserved premium to peers, not a discount.

On this topic, world-renowned investor Louis Navellier is the person I turn to. Louis’ Portfolio Grader gives GMS stock a quantitative grade of “B,” indicating the amount of buying pressure is quite high.

And his system identifies scores of lesser-known companies that are on the cusp of erupting.

Louis’ track record is enviable and packed with winners, including the following:

204% in Baidu
477% in EMC Corp
130% in Regeneron
214% in Allergan
252% in Nokia

To learn how to invest in disruptive innovators before they’re household names, and to recieve Louis’ top stock picks, click here.

As of this writing, Vince Martin is long HEAR and DELL through hedged positions, and owns shares in GMS, Inc.

Author: Vince Martin

Source: Investor Place: 10 Cheap Stocks to Buy at Less Than 10x Forward Earnings

Count on some twists and turns, but the driverless-vehicle revolution is just getting started.

Self-driving cars are poised to revolutionize the transportation industry. There have been many significant shifts in the auto industry since the beginning of commercial auto production roughly eight decades ago, but the basic formula of a human operator guiding a vehicle using a steering wheel and pedals has held pretty steady across that time span. That’s changing quickly. Newer cars already have automated features for things like parking and collision detection, and auto and tech companies are hard at work to deliver vehicles that are capable of advanced navigation without input from a human driver.

Automated driving systems (ADS) for cars, trucks, and vans are on the way and set to bring some huge changes and opportunities. Here’s a look at what the future might hold, some of the big roadblocks facing driverless technology progression, and what the major breakthroughs from the improvement of the tech could mean.

What are the levels of autonomous vehicles?
Autonomous car functionality is often referred to and judged on a six-tier scale, with Level 0 representing no autonomous component and a Level 5 ranking signifying an autonomous vehicle that can consistently perform all driving functions without the need for any human input. The table below outlines the basic characteristics of each of the five levels of autonomous cars as outlined by the Society of Automotive Engineers (SAE):

Level Defining Characteristics

Level 0 — No automation The driver is responsible for all core driving tasks. However, Level 0 vehicles may still include features like automatic emergency breaking, blind-spot warnings, and lane-departure warnings.

Level 1 — Driver assistance Vehicle navigation is controlled by the driver, but driving-assist features like lane centering or adaptive cruise control are included.

Level 2 — Partial automation Core vehicle is still controlled by the driver, but the vehicle is capable of using assisted-driving features like lane centering and adaptive cruise control simultaneously.

Level 3 — Conditional automation Driver is still required but is not needed to navigate or monitor the environment if certain criteria are met. However, the driver must remain ready to resume control of the vehicle once the conditions permitting ADS are no longer met.

Level 4 — High automation The vehicle can carry out all driving functions and does not require that the driver remain ready to take control of navigation. However, the quality of the ADS navigation may decline under certain conditions such as off-road driving or other types of abnormal or hazardous situations. The driver may have the option to control the vehicle.

Level 5 — Full Automation The ADS system is advanced enough that the vehicle can carry out all driving functions no matter the conditions. The driver may have the option to control the vehicle.
INFORMATION SOURCE: SOCIETY OF AUTOMOTIVE ENGINEERS.

What can autonomous driving systems do right now?
Newer cars already feature machine-corrective and machine-assisted technologies like lane correction, potential collision detection, and automated parking. Some cars from manufacturers including Tesla and Audi include semi-autonomous driving features that fall in the Level 3-functionality tier.

Most of the more advanced ADS-enabled vehicles that have been released fall into the Level 2 and Level 3 designations, while commercially available vehicles with true Level 4 functionality are still in the development and testing phases. Ford expects to launch Level 4 vehicles in 2021, and Baidu (NASDAQ:BIDU) and Volvo are also teaming to launch Level 4 vehicles in 2021. Some sources suggest that Level 4-capable vehicles will be available even earlier, and Alphabet’s (NASDAQ:GOOG) (NASDAQ:GOOGL) Waymo already has a fleet of self-driving vehicles that are seeing limited use as taxis on on public roads. Tesla founder and CEO Elon Musk has stated that his company will have Level 5 electric vehicles ready in 2020.

However, other analysts and industry figures have a more cautious outlook on the technology’s development, taking the position that many projections are too optimistic.

Steve Wozniak, Apple co-founder and a person who was once bullish on the future of self-driving cars, believes that self-driving car technology is very far away from being good enough to implement at scale. And you might be surprised to hear that Waymo CEO John Krafcik has stated that autonomous vehicles will never be able to drive in all conditions.

ADS technology has come a long way, but some significant hurdles and big advancements still must be worked out and implemented before true Level 4 and Level 5 cars are made available to consumers. The diverging range of projections on when these tech advancements will arrive at the consumer level suggests that companies and prognosticators may be using different definitions and grading systems for evaluating driverless functionality.

Are self-driving cars safe?
Some reports and experts suggest that ADS vehicles are already safer than human-operated vehicles when it comes to performing some driving functions. Self-driving cars don’t suffer from sleep deprivation, and they can’t drive under the influence of drugs or alcohol. They also have wider fields of vision and are designed to obey traffic laws, while human drivers will sometimes disregard laws or fail to follow them due to being distracted.

Self-driving technology has the potential to reduce crashes, but some high-profile accidents have raised questions about risks posed by poorly functioning autonomous-driving systems. In January 2016, a man was killed in China after his Tesla crashed into the back of a cleaning vehicle. The Tesla reportedly had its self-driving features activated at the time of the crash. This marked the first reported death in which a vehicle’s ADS features were viewed as a potential contributing factor, although the police did find that the Tesla driver had not been paying attention to the road in accordance with the autopilot rules.

In May 2016, a man died in the U.S. after his Tesla hit a truck and its tractor while in autopilot mode. The Tesla’s sensors misidentified the truck’s white tractor as being part of the sky. There have been instances in which self-driving cars appear to be at fault for crashes, but human operators not paying attention to the road (as is required in Level 2 and Level 3 systems) has also been a factor.

Debate about the safety of driverless cars intensified in 2018 after a woman in Arizona was struck and killed by an Uber vehicle that was reportedly operating in self-driving mode. The accident prompted the ridesharing company to temporarily suspend its testing of autonomous vehicles on public roads. The vehicle involved in the crash was categorized as operating with Level 3 functionality, and reports suggest that the pilot of the car was looking down at the time of the accident — which means the accident could have partially been the result of human error. Uber resumed testing roughly nine months after the fatal crash.

The public data available for evaluating how safe self-driving cars are remains somewhat limited. Most of the cities and states in which autonomous driving testing is taking place tend to have relatively dry weather conditions and simple road systems that make it easier for driverless vehicles to function. California is also the only state in America that requires companies testing driverless cars to submit reports detailing each accident involving autonomous vehicles on public roads. But even California’s reporting requirements do not provide a very detailed view into the performance of driverless vehicle systems.

It’s difficult to make a clear across-the-board assessment about the level of safety that autonomous vehicles provide. Competing automated driving systems also rely on different technology platforms, and some systems are likely safer than others, but it does appear that autonomous driving systems can outperform human drivers in ideal operating conditions. A study from Axios found that humans were responsible for most of the accidents in California involving self-driving cars from 2014 to 2018. However, as noted by Waymo’s John Krafcik, the technology still needs improvements to make it more functional in a wider range of scenarios.

Will people accept self-driving cars?
Self-driving cars have some perception issues to overcome. The 2019 installment of AAA’s annual autonomous-vehicle survey found that 71% of people surveyed would be afraid to ride in fully autonomous vehicles — down slightly from the 73% of respondents in 2018 and up substantially from the 63% of respondents who said that they would be scared to be a passenger in a driverless vehicle in 2017. Just 19% of respondents in the 2019 survey said that they would be comfortable with putting their children and other family members in autonomous vehicles.

A report from CivicScience produced similar results, with 72% of respondents indicating that they were “not comfortable at all” with driverless cars. Just 6% of respondents in the CivicScience study reported that they were completely comfortable with the technology.

Data shows that people are cautious about ADS technology and that many will need to see evidence that it is safer than having people drive before embracing it. A Reuters Ipsos poll published in April 2019 found that half of people thought that autonomous vehicles were more dangerous than vehicles operated by human drivers. Two-thirds of survey respondents indicated that they thought self-driving cars should have to demonstrate a higher standard of safety than human drivers.

Some experts believe that weak support for driverless vehicles stems from high-profile accidents involving ADS technology and people having little experience with autonomous vehicle technology. Greg Brannon, AAA’s director of Automotive Engineering and Industry Relations, laid out this explanation for the current perception surrounding driverless technology and what he expects will improve sentiment:

Automated vehicle technology is evolving on a very public stage, and as a result, it is affecting how consumers feel about it. Having the opportunity to interact with partially or fully automated vehicle technology will help remove some of the mystery for consumers and open the door for greater acceptance.

AAA’s study found that drivers who had experience with automated driving features including lane-keeping assistance, automatic emergency braking, and self-parking were more likely to trust autonomous driving features. If the technology continues to improve and machine-operated driving systems are shown to be reliably safe, favorability ratings for self-driving cars will likely increase over time.

What benefits could self-driving cars offer?
If self-driving technology continues to progress as many analysts anticipate, autonomous vehicles could actually dramatically reduce the occurrence of automotive accidents. Tens of thousands of people in the U.S. are killed in car accidents each year, and many more people are injured.

Auto collisions are also hugely costly, causing hundreds of billions of dollars in damage each year in the U.S., according to some studies, and the National Highway Traffic Safety Administration (NHTSA) estimates that 94% of auto accidents are caused by human error. Reducing human input has the potential to result in fewer deaths and injuries and reduced economic damage if automated driving systems are up to the task of taking over.

Having self-driving cars could also give people a lot more free time. Commutes might be spent working on projects, talking to other passengers, or watching a favorite television show on an in-vehicle entertainment system. While many people enjoy driving, the opportunity to get things done or enjoy leisure time while in transit could translate to significant productivity and quality-of-life improvements. The average American spends more than 12 days driving each year, and the country’s drivers register more than 80 billion combined hours on the road annually, according to the Federal Highway Administration and the Department of Transportation.

Could driverless vehicles completely replace regular cars?
With a staggering number of deaths and massive expenses stemming from automobile accidents due to human error, some people have asked whether human driving might be phased out if autonomous vehicles are shown to be significantly safer. The argument could be made that failing to fully transition to autonomous transport will result in lives being lost, unnecessary damage being incurred, and energy resources being wasted.

Major technological improvements would likely be needed before a full movement away from human-operated vehicles could gain public and legislative support, but some people in the field see the shift happening. Elon Musk stated in 2015 that he believed that cars operated by humans would one day be outlawed because autonomous vehicles would be much safer.

Robotics and artificial intelligence expert Rodney Brooks wrote in a 2017 report that he sees a long road to getting driverless cars to the point at which they are as smart as humans and can reliably handle the unexpected anomalies that pop up on the road. However, Brooks also stated that he believed many people reading his report would see autonomous vehicles make human driving disappear within their lifetimes.

Many experts believe that fully autonomous vehicles functioning at scale could be decades away or that the technology might never be capable of fully replacing human drivers. Even if driverless cars were reliably shown to be as safe as or safer than human drivers, many people would not want to give up having the ability to drive. A poll conducted by Gallup in 2018 found that 34% of people enjoyed driving “a great deal,” while another 44% enjoyed it “a moderate amount.” Those results suggest considerable affinity for having control over vehicles, and it’s not unreasonable to think that a hypothetical legislative push to have human drivers completely relinquish the steering wheel would be met with resistance.

As Musk and others have pointed out, it is possible that significant safety improvements brought about by driverless cars could result in government efforts to further regulate or outright ban human-operated vehicles. It might seem far-fetched at present, but no one can say with certainty what the future holds, and evidence showing that accidents would be reduced and lives would be saved could be very persuasive.

Is the rise of self-driving cars an investing opportunity?
With automated driving systems on track to continue improving, it’s reasonable to think that the technology could be a huge tailwind for companies that are positioned to capitalize. Business Insider Intelligence reports that roughly 10 million cars with automated navigation technology will be on the road in 2020. McKinsey has predicted that roughly 15% of automobiles sold in 2030 could be fully autonomous. Intel has estimated that the global market for autonomous vehicles, or “the passenger economy” as it dubs it, will surpass $7 trillion annually by 2050. Morgan Stanley has estimated that providing service to autonomous vehicles will be a $200 billion industry annually for telecom providers in 2050 and expects that roughly 300 million autonomous vehicles will be on the road at that time.

The rise of autonomous vehicles will have big impacts across a wide range of industries, and this means many companies could benefit from the emerging tech. Leading technology companies like Amazon and Apple can be counted on to have product and service offerings in the autonomous vehicle space. Morgan Stanley has referred to smart cars as “iPhones on wheels” — a description that reflects the automobile’s potential to emerge as one of the next big consumer-level computing hubs and suggests the potential for services beyond one-time vehicle sales.

What do self-driving vehicles mean for car companies?
It’s still not clear what the rise of autonomous vehicles will mean for the automotive industry’s major players. Cars that are capable of navigating the streets without a human driver could be rented out by their owners for use in ridesharing services — a trend that might result in a drastic reduction of individual car ownership and work against auto manufacturers.

The introduction of self-driving cars is widely viewed as the key to getting ridesharing businesses like Uber and Lyft into states of consistent profitability. In some markets, labor accounts for roughly 60% of the total cost structure in a traditional taxi business, so there’s room for huge efficiency improvements with the shift to autonomous vehicles. If ridesharing services become significantly cheaper, individual car ownership could decline substantially. The convenience offered by individual car ownership won’t vanish in the near future, but the value proposition is already changing thanks to ridesharing services, and shifts could be even more dramatic with advancements in ADS technology.

Alternatively, some models for how automated driving systems will impact auto manufacturers hold that carmakers and fleet operators like General Motors (NYSE:GM), Fiat Chrysler, and Waymo will own most of the market’s self-driving vehicles, and consumers will simply use them through a ride-hailing service. Others suggest that driverless vehicles could actually increase personal ownership because people would be able to easily rent their vehicle out for ridesharing.

Stocks for investing in self-driving cars
It’s still too early to state definitively who the big winners of the driverless revolution will be, but there’s lots of opportunity in the broader category. The table below profiles companies in autonomous-vehicle technology that deserve a close look from investors who are interested in the space.

Company Key Strengths
Alphabet

Leadership in the search and operating system markets gives the company access to a treasure trove of valuable data that can be used to improve AI and driverless technology performance for Waymo and other ventures.
Top software development teams
Strong core businesses and financial position allow the company to fund its autonomous vehicle projects and prioritize long-term results over near-term profitability.

General Motors

Expertise in large-scale automobile manufacturing
The company’s Cruise subsidiary is attracting plenty of funding, is broadly considered a top player in autonomous vehicle technology, and could be one of the first players to roll out a large-scale driverless ridesharing fleet.

NVIDIA (NASDAQ:NVDA)

Expertise in graphics hardware and systems that are crucial for machine vision
The company’s data center business is also positioned to see significant tailwinds from the growth of the autonomous vehicle market.

NXP Semiconductors (NASDAQ:NXPI)

Biggest global supplier of automotive computer chips
Leading position in automotive infotainment chips and growth opportunities in automotive radar and other sensing products

Baidu

Leading position in China’s search market means access to data that can be used to improve its artificial intelligence systems
Partnered with the Chinese government for the development of the country’s autonomous vehicle and smart-city initiatives

Alphabet
Alphabet launched Waymo, its self-driving car unit, under the Google division of the company before spinning it off as its own subsidiary in 2016. Waymo is an early leader in driverless technologies and was the first player in the space to roll out an autonomous taxi service at the consumer level. Alphabet has also been using self-driving cars to ship goods between its Waymo and Google divisions, and its autonomous vehicle arm is also working to develop self-driving trucks suitable for commercial shipping needs.

Waymo is partnered with vehicle manufacturers Fiat Chrysler and Jaguar Land Rover and has been purchasing and updating vehicles in large quantities to rapidly expand its self-driving fleet. Alphabet’s strong position in data and search gives it big advantages in the artificial intelligence space that will carry over to the race for leadership in autonomous vehicles and associated services. Efforts to establish Android as a top operating system for connected cars are also likely to benefit its driverless vehicle push and could give the company a way to benefit from other companies’ autonomous vehicle initiatives.

General Motors
General Motors has been an aggressive mover in the driverless car arena. Big investments from the company combined with its solid footing in the electric vehicle space and streamlined large-scale auto manufacturing expertise could help it build an early edge that solidifies into a long-term leadership position in autonomous vehicles.

GM’s self-driving, ridesharing subsidiary Cruise could also position the company to see strong tailwinds from the rise of driverless technology and help insulate it against the potential of resulting slowdown for personal vehicle sales. The company believes that it could generate hundreds of thousands of dollars in revenue across the lifetime of one autonomous vehicle. Cruise has attracted billions of dollars in investments from companies including Honda and Softbank for the development of ADS technologies. Along with Waymo, GM’s Cruise appears to be at the forefront of the driverless taxi space.

NVIDIA
NVIDIA’s strength in visual processing chips makes it a leader in artificial intelligence and machine vision. The company’s business has historically grown around creating graphics processing units (GPUs) that are used in gaming consoles and video game-focused PCs — which might seem to make it an odd player in the autonomous vehicle space. However, the company’s expertise in GPUs meant that it already enjoyed a head start in developing the types of hardware and software needed to process visual data.

Being able to read and respond to the environment is the core of ADS technology, and the graphics specialist’s efforts to tailor processors and software to meet the specific demands of driverless vehicles helped it grow its customer base in the category to hundreds of companies worldwide. NVIDIA’s GPUs and computing platforms are also key components in many data centers, and the explosion of new data that’s likely to stem from increased adoption of driverless vehicles stands to be a significant demand catalyst for its products.

NXP Semiconductors
As the world’s biggest automotive chip supplier, NXP Semiconductors could see a range of tailwinds as vehicles become more advanced and efficient. With autonomous navigation allowing drivers to concentrate on things other than the road, many driverless cars will likely be outfitted with in-vehicle entertainment systems. NXP is the top player in the automotive infotainment chip space and could see significant momentum from the driverless trend. The company is also seeing encouraging growth from its radar-based advanced driver-assist system (ADAS) and is making a push into producing machine-vision computing systems and sensor processors — partnering with French chip company Kalray to accelerate its position in the space.

With advances in technology paving the way toward making the car a major new information and computing hub, there’s a huge opportunity for companies that can help turn the automobile into a connected, high-end smart device. Cloud computing will likely play an increasing role over time, but capable on-board hardware will always be essential.

Baidu
Baidu operates China’s top search engine, and the company’s leading position in the world’s largest internet market gives it access to huge amounts of data to feed into and refine its AI applications. Having access to more connected users and more data looks to be the defining advantage in the AI space, and that strength is likely to carry over to the autonomous vehicle space. China’s government certainly seems to think so.

China named Baidu’s Apollo operating system for ADS software and cloud services the country’s national platform for driverless vehicles and is investing in infrastructure like road sensors that should speed the development of the tech. With autonomous vehicles expected to generate massive troves of data, the company’s strong position in the Chinese driverless operating-system market suggests it will dominate another highly influential data source and expand its edge in artificial intelligence.

Other ways to invest in driverless cars
Even for more conservative investors, it’s not hard to find companies that have the potential to benefit from the driverless revolution. There’s plenty of potential to make pick-and-shovel-type investments in companies that will provide the supporting hardware, software, and networks that driverless cars will need to function efficiently. These vehicles will need up-to-date mapping technology, advanced imaging sensors, global positioning system (GPS) hardware and software, and internet connectivity, among other things.

Providers like AT&T and Verizon view the rise of connected and self-driving cars as a potential growth source and are ramping up their respective vehicle-connectivity businesses. Companies specializing in networking and security like Cisco stand to benefit as well. Driverless vehicles will also be a huge source of data, producing massive amounts of data every day they’re in operation.

Why self-driving cars’ limits won’t hinder their success
While it’s still too early in the market’s development to predict exactly what the future holds for self-driving cars, the rapid advancement and promise of the technology suggest that it will continue to gain ground and move toward mainstream adoption. The sector must still overcome plenty of limitations before the tech can function as ideally envisioned, and concerns about the safety of autonomous vehicles and the broader societal impact stemming from potential changes like a rapid evaporation of driving-based jobs should be taken seriously.

Still, if the tech continues to improve on its current trajectory, there’s a good chance that self-driving vehicles will eventually see large-scale adoption and pave the way for a reduction in accident-related deaths, injuries, and expenses. Advances in computational power, network connectivity and speeds, and an explosion of new data combined with plenty of incentives to further automation and the driverless technology revolution suggest it’s only a matter of time before robotic drivers are on the streets in large numbers.

Author: Keith Noonan

Source: The Motley Fool: What Does the Future Hold for Self-Driving Cars?

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