As an investor, I am sure you might have considered investing in stocks from the aerospace and cannabis sectors.
The legal weed industry started booming in anticipation of Cannabis 1.0 back in 2018, but industry-wide carnage throughout 2019 has brought the shares of cannabis companies down significantly.
The industrial sector presents decent investment opportunities for investors in healthy economic conditions. The nature of the industrial sector, however, makes it prone to the gyrations in the domestic and global economies.
Keeping these things in mind, there are two stocks you should avoid. I am going to discuss both Magellan Aerospace (TSX:MAL) and CannTrust Holdings (TSX:TRST)(NYSE:CTST), so you can understand why you must avoid the two stocks.
Not a high flyer
Magellan Aerospace has had a tough 12 months. The $827.15 million market capitalization company is responsible for the design, development, manufacture, and repairs of critical components used in the aerospace sector.
When the economy is healthy, operators like Magellan offer investors a fantastic opportunity for financial growth. Likewise, an economic downturn can spell disaster for companies like Magellan.
The recession of 2008 saw Magellan’s shareholders sell almost 95% of the company’s stock. In the aftermath of the recession, it took Magellan stock just to get back to 2008 figures.
Trading for $14.21, Magellan stock is currently down by more than 23% of its 52-week high in April 2019. The possible onset of a recession in 2020 does not make the picture any better for Magellan stock.
A cannabis stock you cannot trust
In an industry full of black sheep, CannTrust is infamous for being the worst of the flock. Riddled with scandals, the small medical cannabis company with a market capitalization of just $200.50 million could not perform well as the carnage ensued last year. CannTrust owns and operates one of the largest and most advanced greenhouses in North America.
CannTrust came under heavy fire last year by creating trust and legal issues. The company was growing illegally sourced marijuana in its facility. The resulting disciplinary and legal action saw the company destroy almost $90 million worth of cannabis products. The actual financial blow, coupled with a complete loss of trust from investors, saw the company decline drastically.
At writing, the CannTrust stock trades for $.142 per share. It is a far cry from its 52-week high of $13.48 per share, with the stock almost 90% down from its price in April 2019. Presently, the company is trying to deal with the consequences of its mistakes. The future looks bleak for the cannabis producer, with its production licence suspended.
Whether or not a recession hits in 2020, it is unlikely for industrial stocks like Magellan to perform well. Similarly, there is a chance that the broader cannabis industry might find ways to recover from the carnage in the coming months. CannTrust, however, is unlikely to make any recovery.
I would strongly suggest keeping a distance from the stocks of both companies in 2020.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends CannTrust Holdings and CannTrust Holdings Inc.