People want me to recommend every Chinese stock. No, I won't. I will only recommend Alibaba (BABA) -- although on pullbacks I like Baidu (BIDU) , and now, perhaps Nio (NIO) , although I have not yet completed the work-up on the latter, so I can't yet tell you to buy it, after it's up 40% for the year.
Why not just say, "Yeah I like that stock. In fact I like that sector."
Because of the risk and reward. Or I should say the reputational risk and the losses you might experience if I bless more than I am doing now.
Why is that? I want to go over with you my reasons for being so adamant about recommending those and no others -- at least right now.
Let's take cannabis first.
I have spent a lot of time with Canopy. I have had many lunches and meetings and interviews with Bruce Linton, the chairman, co-CEO and co-founder of Canopy, which is attempting to be the dominant seller of both recreational cannabis and medical cannabis. It has made great strides doing so -- and, by last count, already has 30% of the burgeoning Canadian market.
In truth, though, the real reason I like it is because Constellation Brands (STZ) has done the due diligence for me. The fastest-growing major beer company could have invested in any company, but it picked Canopy to give $4 billion dollars to in order to effectively control the company. If you want to see how that was done, I ran a teach-in with Bill Newlands, the soon-to-be CEO of Constellation. It made me doubly sure that Canopy is worth recommending. How can you out-due-diligence Constellation?
I admit I was more skeptical of Cronos. But CEO Mike Gorenstein has similar ambition to Canopy, and it has the backing of Altria Group (MO) , which gave the company $1.8 billion to help them develop the infrastructure to be a global player in cannabis. Again, Altria's got gravitas -- and Mike Gorenstein, the chairman, president and CEO of Cronos, seems like a real straight shooter.
GW Pharma? What can I say. It's the chicken way to play cannabis, because it is a medical company. What makes it any different from Cronos and Canopy? FDA approval. It's got it, they don't. You can dose it because it is uniform; doctors love that. It's only been approved for a horrendous form of epilepsy for children. Millions of people suffer from epilepsy -- read Kurt Eichenwald's book, A Mind Unraveled, if you want to know how bad it is. This $5 billion company deserves a much-bigger market cap because of those possibilities and its status as the anointed legal pharma in the space.
The other companies? They don't have the pedigree, infrastructure partners, or in GW's case, blessing, to make me like them. And you don't need to like them all to make money, especially when they get really extended and you have to trade them not invest in them.
How about China? I like Baidu because it's been hammered and the internet search engine has a monopoly because Google doesn't have a presence in China. I am interested in Nio because of the need for electric cars in China, as pollution is so bad there and a million people die every year from respiratory illnesses. But Alibaba is my favorite, because it is the Amazon (AMZN) of China -- and that's a gigantic market. And it has U.S.-like financials. It, too, is a terrific buy on weakness.
Again, you don't need to recommend every Chinese stock to participate in a market that could blow up if President Trump does to China what he just did to North Korea.
What if I do more of these? These are the two riskiest segments of the entire market. I can really hurt people in these. At least when these picks go down, I can tell you to buy more.
What can I say? These are the home of the best, and I am going to leave the raggedy rest to others.