There's nothing like a new year to get an investor mulling over stocks that have the potential to make them lots of money. While no one can predict the direction of any company, savvy investors will take the time to analyze their current portfolios and begin making investments that will hopefully be advantageous as 2021 unfolds.
Three Motley Fool contributors examine their portfolios and the available opportunities, and share what they bought in January and what they're eyeing as future opportunities.
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Making my portfolio sparkle
Barbara Eisner Bayer (SSR Mining): I had a great year in 2020, along with most of the investment community, and took some cash off the table in preparation for buying opportunities in 2021. As a result, I'm on the prowl for delicious opportunities when they present themselves. However, I'm close to retirement, so I'm developing a hunger for safer or dividend-generating investments, which has been challenging because I've always had an appetite for high-growth stocks.
One thing I'm trying to do is hedge my bets -- choosing investments that move in the opposite direction of what I already own -- to bring more diversity and balance to my portfolio. With the Federal Reserve committed to keeping interest rates low until the economy fully recovers, I'm not finding opportunities in the bond market, so I've turned to another area for my first purchase of the year: precious metals.
Ah, gold and silver... the lustrous metals that glisten so brightly on my fingers and wrist and hang impressively around my neck. I've decided it's time for them to make my portfolio glisten in the form of mining company SSR Mining (NASDAQ: SSRM).
SSR's business is the exploration and development of precious metals, including gold, silver, and other minerals, which are necessary for a number of industries, including dentistry, electronics, coin making, and, obviously, jewelry. As our government and its international counterparts continue adding more stimulus money to the economy, the value of the dollar will drop, but inversely, the value of gold will increase, along with (hopefully) my investment.
The company's future looks bright. It easily beat earnings in its latest quarter, thanks to the surging price of gold. It also closed on its purchase of Alacer Gold in Turkey, which will bring high-quality operating assets to SSR. Turkey's energy and natural resources minister hopes to double production over the next five years. The company also announced the initiation of a quarterly dividend that will begin in the first quarter of 2021.
Since I've made that investment, the stock has dropped. And dropped. (Did I mention that it dropped?) But instead of freaking out and selling it, I purchased more, as my plan is to dollar-cost average into the stock. By doing so, I divided the amount of money I'm willing to spend by four and will be purchasing lots over the next few months. This helps me take advantage of price drops while I wait for the stock to turn around.
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A cyclical projection on a better 2021
Chuck Saletta (Caterpillar): Ordinarily, I spend much of January in "cleanup mode" for my investments. In particular, long-term LEAP options generally expire in January. That means any open options positions that I originated using those contracts a few years earlier need to be addressed to ensure they're handled the way I want. If I don't do that cleanup, my broker's automatic assignment rules at options expiration would dictate what happens, instead of my own choices.
As part of that cleanup, I decide whether I want to close or reduce my options exposure to those companies, maintain it, increase it, or convert the holding to stock. During this January's cleanup, my first big decision to increase my options exposure was on construction titan Caterpillar (NYSE: CAT). My choice was a largely bullish projection that projects that got deferred in 2020 due to COVID-19 would likely be reinstated in 2021.
My rationale for that decision was that between vaccinations and more effective treatments than we had in mid-2020, COVID-19 would likely either get conquered or become more feasible to manage. As a result, it would be likely that people's decisions would start tilting back toward getting things done.
With very weak 2020 earnings due to the economic slowdown put in place to fight the virus and a business that is already expected to be cyclical in nature, Caterpillar looked to be a decent bet for 2021. So on Jan. 4, 2021 -- the first trading day of the year -- I both cleaned up my soon-to-expire Caterpillar options and increased my total exposure to the company.
I've gotten extremely lucky so far -- good economic news sent the company's shares higher shortly after I made that investment. Only time will tell whether it really turns out well, but the early signs point to a legitimate chance of success.
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Time to fire up some growth!
Eric Volkman (Cresco Labs): I confess that I haven't pulled the trigger on any stock this year… at least, not yet. One company I'm seriously considering as my No. 1 buy is Cresco Labs (OTC: CRLBF). Cresco is a marijuana company, one of many that sprang from the ground after the drug started to become legalized in fits and starts in America in the mid- to late 1990s.
Marijuana is a particularly interesting play now because legalization is really beginning to snowball. These days, 15 states plus the District of Columbia have sanctioned the sale and consumption of recreational weed. Of those, four came onboard during the so-called "Green Wave" in the last election, when their residents voted emphatically in favor of legalization ballot initiatives.
More states are sure to follow. We're still inside a public budget-draining pandemic, after all, and they desperately need as many sources of tax revenue as possible.
Meanwhile, in Washington, the House of Representatives passed the MORE Act this December, which among other measures would fully decriminalize weed at the federal level. With a now 50/50 Senate and the Democrats holding the potential deciding vote plus the presidency, passage in that chamber looks much more likely, as does a presidential signature making it law.
This might not happen soon, as Congress and the new president will have their hands full with more pressing matters. But this snowball continues to tumble down the mountain and, one way or another, in the Senate, the White House, or in a clutch of state capitals, the U.S. market will keep expanding.
This is why I like Cresco. The company is positioning itself as a major wholesaler to the marijuana retail segment, and on top of that runs a network of dispensaries under the Sunnyside brand. These stores are located in six states, four of which have approved recreational marijuana. The vast majority (10 in total) are situated in Cresco's home of Illinois, which is one of the most vibrant and welcoming U.S. markets since it legalized recreational pot just over a year ago.
Consequently, many of Cresco's important metrics are headed north. In its third quarter, the company grew its revenue by 63% on a quarter-over-quarter basis, a robust figure by any standard, to more than $153 million. It even managed to turn a net profit, a rare feat in this industry, although that was fairly modest at a shade over $4.9 million.
Also, management is getting better about reining in costs, another development I like. Selling, general, and administrative expenses barely inched up quarter-over-quarter (to under $46.8 million), while that top line went on its 63% climb.
Granted, investing in nearly any marijuana company has its risks -- habitual losses and cash shortages are only two of them. But this is an industry sitting on a lot of potential that's about to be tapped, and Cresco is the right company at the right time to take advantage of it.
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Barbara Eisner Bayer owns shares of SSR Mining Inc. Chuck Saletta has the following options: long January 2023 $180 calls on Caterpillar, short January 2023 $180 puts on Caterpillar, short January 2022 $120 puts on Caterpillar, and short January 2022 $200 calls on Caterpillar. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cresco Labs Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.