These wise words convey a strategy I was taught several years ago that, to this day, I believe to be true and widely accepted. So, why do so many investors pour into weed stocks that don’t pay a dividend? Is it the promise of finding the next 10-bagger, or perhaps the rock-bottom prices?

Here, I give you the goods on one of the most popular weed stocks, Canopy Growth Corp. (TSX:WEED), and why I’m highly skeptical on this company’s upside potential.

If you look at the price action of this stock, investors will instantly notice a bearish trend; the stock The stock has fallen approximately 47.5% in a four-month span.

So, what caused the biggest weed stock to fall so much so fast? When we look at Canopy’s financials, we see that the last reported earnings (Q3) show revenue of $9.8 million—a 180% gain over the previous year, but well below analysts’ expectations. Problems arise with revenue growth being severely limited by a lack of products for sale, despite harvesting record amounts of cannabis in the third quarter (5,264 kilograms), less than 10% of that was available to consumers.

And what about dividends? Don’t expect those anytime soon because of an EPS of -0.03, a forecasted EPS of -0.04 for Q4, along with a projected fiscal year-end EPS of -0.09.This only adds to the downsides of Canopy.

Additionally, Prime Minister Justin Trudeau announced recreational marijuana sales were not impending. The federal government, which introduced a bill to legalize marijuana on April 13, 2017, left out a crucial part related to Canopy’s business model: edibles.

In the California, an estimated 10% of the state’s overall marijuana sales are cannabis-infused products, also known as edibles. Does this mean that if, and I mean if, marijuana is legalized in Canada, Canopy will be unable to sell edible products to its recreational consumers? There are many more roadblocks ahead for this company and the industry as a whole.

According to the most recent Health Canada statistics from 2016, almost 130,000 Canadians are eligible to buy medicinal marijuana. Although this number is up substantially from 98,000 recorded users in September 2016, one must objectively ask themselves, “How many of these people are merely recreational users who obtained a medical licence?” Why does this matter?

It matters because much of the “marijuana will go to the moon” crowd are hanging their hats on the assumption that there will be many more recreational users on top of the current medicinal licence holders. They speculate that millions of Canadians will flock to their local dispensaries to purchase large amounts of inventory, but have they factored in that many of the recreational users have already found a way to get marijuana legally?

The problem with Canopy stock, or any weed stock, for that matter, is when investors seek to buy these securities, they not only must have a handle on the underlying fundamentals, but they must also closely follow the political climate, nationally and internationally, making it very research intensive.

Fools would be wise to let Canopy prove themselves over a longer time frame, preferably post-federal legalization. Until that time, you are merely speculating on a medicinal marijuana company that is restricted by the current criminal code and laws.

The post Don’t Get Caught Holding the Bag With Weed Stocks appeared first on The Motley Fool Canada.

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If you invest in the S&P/TSX 60, you’re likely aware of the significance of the financials sector on the Canadian economy. When we take a closer look at the “Big Five,” one stock stands out as being greatly undervalued. Toronto-Dominion Bank (TSX:TD)(NYSE:TD), , or TD, has seen a steady downtrend ever since it peaked in late February.

The cause?

TD was the subject of a CBC investigation, which looked into how TD’s employees felt compelled to sell at all costs in an attempt to meet the bank’s expectations. TD’s stock experienced the biggest single-day drop since the Financial Crisis. But what seems like bad luck for TD can be an investor’s best friend. It is widely known that many of the other major banks use similar practices as TD’s high-pressure sales tactics; in this instance, TD just so happened to be in the spotlight.

Buy the dip

The stock has fallen 8.88% per share in the last three months, at the time of writing — it has been hammered by shorts and what I believe is unjustified panic. This isn’t a case of “don’t catch a falling knife.” TD should be on every value investor’s radar. This is also a company that has increased dividends year after year with consistent growth, making it appealing for investors seeking dividends.

What about interest rate hikes and the effect on TD’s stock?

Conventional wisdom dictates when rates and banking profits rise. A research study performed between 2005 and 2013 by the U.S. Federal Reserve board, regarding 47 countries and 3,418 banks, showed a positive correlation between rising interest rates and rising bank profits.

In Canada, interest rates have been incredibly low, holding tight at 0.5% for over a year. But when we look at the statistical average between 1990 and 2017 we get an average rate of 5.93%.

We don’t know exactly when rates will rise and by how much, but it’s very likely that at some point in the near future, the central bank will slowly raise rates. Certainly, this is not without risk — borrowers could be at risk for defaulting on outstanding loans. Given the positive spread banks generate from rising rates, I would expect to see TD generating more positive earnings reports and dividend growth.

Future forecast and fundamentals

With its latest Q2 earnings exceeding market analysts’ expectations and the expected future dividend growth in the upcoming Q3 earnings reports, things look bright on the horizon. To add to the financial upside, TD has launched a review of its sales practices in the wake of the bad publicity from the CBC investigation.

A widespread expansion into the American market also provides serious growth and upside potential for TD going forward, with the company reportedly doubling its number of ATMs in the state of Florida alone. Buckle up for the future with this stock; it’s a buy and hold for the long term.

The post Why I’m Bullish on Toronto-Dominion Bank Despite the Downtrend appeared first on The Motley Fool Canada.

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