“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, July 29, 2019

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

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"Trading Capital Management"



Aphria Inc (NYSE: APHA) Earnings Results

Friday, August 02, 2019

Aphria reported its fiscal fourth-quarter earnings Thursday after the closing bell, issuing guidance for fiscal 2020 and also posting a profit — both rarities among cannabis companies. Aphria became the first major Canadian cannabis company to report a net profit.

"It's a new day at Aphria," Interim CEO Irwin Simon said in a statement.

He added later: "Over the last six months, our organization identified immediate priorities to help generate substantial progress near-term and long-term. We built upon existing business fundamentals and capabilities, streamlined processes, strengthened governance, and focused on building brand awareness."

The Canada-based weed producer reported fiscal fourth-quarter net income of C$15.8 million ($11.9 million), or 5 cents a share, compared with losses of $C5 million, or 43 cents a share, in the year-ago period.

Its fiscal 2020 guidance was likely one of the other reasons shares rose more than 30% in the extended session Thursday. In the conference call, executives said they expected revenue net of excise taxes in the range of C$650 million to C$700 million. Simon said the company aims to hit a C$1 billion run rate by the end of the fiscal year.

About half of that projected 2020 revenue will be from its pharmaceutical distribution, the result of its acquisition of CC Pharma, which closed this year. Aphria paid €18.92 million ($21 million) in cash to former CC Pharma shareholders.

Aphria’s recreational cannabis sales grew 158% to C$18.5 million from the prior quarter, or roughly 15% of the company’s net revenue of C$128.6 million for the fiscal quarter that ended in May.

The results are a remarkable shift from last quarter, when Aphria reported a significant drop in gross margin, revenue that missed expectations and a C$50 million writedown on its Latin American assets.

Interim Chief Executive Officer Irwin Simon indicated there’s no immediate plan to replace him with a permanent leader. “The leadership team we have in place is solid; there is no management void at Aphria,” he said. “There is no emphasis on ‘interim’ by me and my team.”

The company is “building strategic partnerships and alliances” in the U.S. CBD market, where it doesn’t currently have a presence. “Let me be clear: we’re always looking for opportunities in the U.S., but it needs to be the right opportunity, one that will create real and long-term value for our shareholders,” Simon said.

Chief Financial Officer Carl Merton reiterated the company’s intent to generate C$1 billion in annualized revenue by the end of calendar 2020

Future Earnings…..

For fiscal 2020, Aphria expects to generate total revenue of 650 million–700 million Canadian dollars. The company also guided that it expects adjusted EBITDA in the range of 88 million–95 million. Aphria reiterated its confidence in its cannabis business and highlighted growth initiatives and recent developments. These include a partnership with the PAX Era brand for vaping devices and a recent receipt of a license to open a retail store in Jamaica.

The Result so far…..

Before the market opens this morning Aphria stock price is nearing the $7.00 mark, and is above Thursday’s price by over 33%.

What to do now?

Obviously the decision is yours!

The original entry price was $0.35.

The price this morning is $0.70 - up 100%.

Sell now or hold for further profit? Remember, the expiry of the options trade is January, 2020 – so plenty of time for further increase (OR decreases!)


Option Trade – Nio Inc – ADR (NYSE: NIO) Calls

Friday, August 02, 2019

** OPTION TRADE: Buy the NIO JAN 17 2020 4.000 CALL at approximately $0.35.

Place a high pre-determined sell at $2.80.

Do not include a protective stop loss at this stage.

Shanghai-based EV manufacturer  Nio Inc – ADR (NYSE: NIO) has had a disappointing run with the share price near $3.30 which is barely more than half its December IPO price of $6.16, and it looks like China's EV market is starting to slow down. Throw in pessimistic analysts and investors no wonder the stock has had a meltdown.

But, none of this information comes as a surprise!

Looking at the information further below, the premise of a rival to Tesla - which has admittedly mainstreamed electric vehicles – makes NIO sound compelling.

Nio stock finally looks to be getting its footing back. The charts of Nio stock continue to improve.

Nio stock price is now north of its 20-day and 50-day moving averages and is consolidating in a wedge pattern. If it climbs, it will need to take out $3.75 to get to $4. If it eclipses $4, $5 is a realistic target.

Earlier this month, Nio announced Q2 deliveries of 3,553, topping its guidance of 2,800 to 3,200. Total deliveries increased each month in the quarter, while its new vehicle, the ES6, has been launched.

About Nio…..

Founded in 2014, the company originally operated under the name NextCar, changing it to NIO in July 2017. In its Chinese form, the name translates to "Blue Sky Coming," which stems from management's vision of a future with azure skies absent the pollution from

Raising $1 billion during its initial public offering, NIO debuted as a publicly traded company on the American market in September 2018. On its first day of trading, the stock opened at $6, closed at $6.60, and traded as high as $6.93 for a reasonable pop.

On Sept. 24, 2018, the company achieved a new Guinness World Record when Chen Haiyi from China ascended the Purog Kangri glacier in Tibet and reached an altitude of 18,751 feet in the NIO ES8, setting a record for the highest altitude achieved in an electric car. According to the company, the feat was meant to demonstrate the EV's prowess in high altitude and extreme cold.

While NIO's vehicles may only be seen on the roads of China, the company is drawing on talent from a worldwide pool of employees. In San Jose, California, for example, the company's North America headquarters is home to more than 500 employees who primarily focus on software development. According to the company, the London office works on "commercial Formula E [race car] management, strategic management, and our supercar development." Nearly 200 employees in the Munich office concentrate on product and brand design.

Analysts opinions can cause misconceptions…..

Analysts’ opinions are often taken too fully; and tend to cause knee-jerk reactions. A fine example of this is UBS analyst Paul Gong, who recently reiterated his neutral rating on Nio stock. He's concerned that "uncertainty remains," even though Gong fully admits that Nio's ES6 model "could record 2k+ monthly deliveries in H219, making it the best-selling premium car from a local brand."

4 of the analysts out of 11 who provided ratings for NIO Inc. stocks as a “buy” while 0 as overweight, 4 rated it as hold and 1 as sell. The average price from analysts is $4.74.

Positive thoughts…..

Nio stock is an innovative upstart. Sure, the company's glacial layers of debt aren’t going to simply melt away anytime soon. But, the charging infrastructure Nio has put in place to differentiate itself from the competition is impressive. The company's commitment is the kind of business gamble which could prove the catalyst for Nio to move successfully forward by building very happy and dedicated customers loyal to its brand.

Since mid-June, Nio has set higher lows trying to break out of the $4 neckline. At a certain point the bears will get tired of defending it and the buyers will prevail. Price will overshoot to a measured move that will carry it to $6 per share.

Influencing factors…..

The environment in which the company operates is still healthy. The global demand for autos is thriving. The global demand for cars is still on fire, especially in the U.S. The Utopian world where we don't want to own cars is still but a dream.

NIO has a wide runway ahead and it is up to management to continue to execute plans. The market in China, where it operates, is the largest in the world so the NIO stock price has probably seen its worst days.

Long-term investors in NIO are in it regardless of these short-term dips and spikes and the technical bullish pattern is developing.

While NIO currently sells only two models, the company aspires to expand its offerings considerably. It articulated this in its 20F annual filing, stating that it intends to "launch a new vehicle model each year for the near future, as we plan to offer our users more choices to suit their preferences and target different segments within the premium electric vehicle market in China." The company also plans to continually upgrade existing models "on an ongoing basis with face-lifts for each model around every one or two years, and do a major model redesign or upgrade every three years."

NIO began delivering the ES6 -- its compact and more affordable SUV -- to customers. During the first quarter conference call, the company said it had received over 12,000 pre-orders for the ES6. That could mean a rebound in sales is right around the corner.

Even as it's cutting subsidies, the Chinese government continues to encourage people to buy EVs by keeping the associated costs low. Some forecasts estimate that by 2025, EV sales will account for about 50% of the total Chinese auto industry. (In 2018, 23.7 million passenger vehicles were sold in the country.) NIO could be in prime position to benefit from that long-term trend.

Perspective in focus…..

Ultimately, a position in Nio stock is a vote in favor of the emerging electric vehicle market. The Nio stock price is low enough that the downside risk is much smaller than the upside opportunity.

This is a truly global industry that's taken much more seriously abroad than in America. China is a potential epicenter of activity as the nation comes to grips with its entrenched pollution problem.

The fact is, auto-industry experts project electric-powered vehicles to comprise 8% of passenger-vehicle sales in China by the year 2020; that number, while already sizable, is predicted to increase to 20% of passenger vehicle sales by 2025. Better yet, it could even reach 68% in 2040.

 Therefore…..

NIO's ES6 model is the next step in the evolution of the revolution: the electric vehicle revolution, that is, and it's coming whether the analysts like it or not.


Option Trade – Aphria Inc (NYSE: APHA) Calls

Monday, July 29, 2019

** OPTION TRADE: Buy the APHA JAN 17 2020 7.500 CALL at approximately $0.35.

Place a high pre-determined sell at $2.80.

Do not include a protective stop loss at this stage as Aphria will report earnings on Thursday, August 01 – we do not wish to be stopped out at this stage if the earnings report is negative!

According to the National Institute for Cannabis Investors, 2019 is turning into the best year yet for cannabidiol (CBD) companies.

The market for CBD is already valued at $591 million since being legalized in the United States in December 2018. This figure is set to soar to $22 billion by 2022, says the Brightfield Group.

That represents an amazing growth rate of 3,623% in just fewer than three years.

Reasons for the industry growth…..

CBD can be most easily produced from hemp.

Since CBD was legalized through this new law, it has fast become a mainstream product across the United States.

According to Healthline, CBD oil helps relieve pain by interacting with the body’s pain receptors.

This has produced a major catalyst for growth among CBD companies that are now filling retail and online stores with CBD edibles, oils, lotions, beverages, and more. In some restaurants, it’s even served in the salad dressing.

Companies like Walgreens Boots Alliance Inc. (NYSE: WBA) and CVS Health Corp. (NYSE: CVS) have seen the potential. These are both companies that have already put CBD products on their shelves.

Therefore, one of the top CBD stocks to buy is Aphria Inc (NYSE: APHA) (TSE: APHA)

Aphria is, by far, one of the best CBD stocks to own today.

It is another CBD stock that is based in Ontario, Canada. The company currently produces and sells CBD products as well as many forms of marijuana.

Aphria has seen its revenue jump 6,595% from 2015 to 2018, an astounding accomplishment.

The best news is that there is still plenty of growth ahead for the company.

It has quickly become one of the world’s top cannabis producers. By the end of this year alone, it will produce about 250,000 kilograms of cannabis.

It is also one of only four marijuana companies that markets to all 10 provinces in Canada, which means it is also selling CBD in all of these markets.

Aphria has created a partnership with Southern Glazer’s Wine and Spirits, North America’s largest wine and spirits distributor, to distribute its products throughout the continent. It is also expanding to Europe and Latin America.

Its net revenue for Q3 2019 revealed year-over-year growth of 240%, and it has $80 million in cash on its balance sheet.

Influencing factors…..

Aphria has the potential to expand significantly, and will become a major player in the market.

One important prerequisite to competing in the cannabis market is production capacity. Aphria is on track to produce 255,000 kilograms of cannabis on an annualized basis, ranking it third overall among cannabis producers in terms of capacity.

Aphria already belongs to the top tier of cannabis producers in Canada based on sales in the country's medical cannabis and adult-use recreational cannabis markets. The company is one of only four licensed producers with supply agreements with every Canadian province for their recreational markets.

The real prize, though, is in international markets. Aphria is a leader in the important German market and was one of three companies awarded a license to cultivate medical cannabis in the country. It's one of seven companies with licenses to import medical cannabis into Italy. Aphria also owns a high-capacity GMP-certified lab in Malta that processes and manufactures medical cannabis and cannabis derivative products.

Outside of Europe, Aphria has operations in Latin America that allow it to reach the medical cannabis markets in Argentina, Colombia, and Jamaica. The company has a joint venture and offtake agreement in Lesotho with Verve Dynamics. Aphria also owns a 25% stake in Australian cannabis producer Althea.

Aphria's valuation looks attractive relative to its peers, especially considering its capacity and extensive international operations. The company thinks that it can generate revenue of around 1 billion Canadian dollars (around $760 million) by the end of 2020. With Aphria's current market cap at a little over $1.5 billion, the stock could be a bargain right now if that goal is achieved.

Earnings Report due August 01…..

Aphria is set to report its fiscal fourth quarter numbers after the bell on Thursday, August 1. Ahead of that print, Aphria stock price has plunged more than 30% since its last earnings report.

Aphria is expected to post quarterly loss of $0.05 per share in its upcoming report, which represents a year-over-year change of -66.7%.

Revenues are expected to be $73.60 million, up 686.3% from the year-ago quarter.

Aphria last released its quarterly earnings data on Monday, April 15th. The company reported ($0.15) EPS for the quarter, missing the Thomson Reuters’ consensus estimate of ($0.04) by ($0.11). The business had revenue of $55.24 million during the quarter, compared to analyst estimates of $41.11 million.

Most signs indicate that its Q4 numbers will be much better than its Q3 numbers. The Canadian cannabis market had a rough January and February. Sales of dried cannabis and cannabis oil dropped tremendously from the end of 2018 to February 2019. But, over the subsequent three months (March, April, and May), Canadian cannabis sales have bounced back.

Specifically, dried cannabis sales rose 14% in March, 16% in April, and 7% in May.  Cannabis oil sales rose 9% in March, 4% in April, and 19% in May. The numbers were mostly in the red in January and February.

So cannabis sales trends have dramatically improved over the past several months, implying that Aphria's Q4 numbers should be much better than its Q3 numbers.

Therefore, if the company can beat expectations with strong Q4 numbers, Apgria stock could stage a sizable post-earnings rally.

Moving Forward…..

Aphria's Interim CEO, Irwin D. Simon, has big plans for the company, which will be reflected in the price before the year is over. For instance, Simon just announced the launch of Aphria's new social impact platform, Plant Positivity. In this program, Aphria will partner with Canadian non-profit Evergreen to create six new garden spaces this summer at the Evergreen Brick Works in Toronto.

Aphria's financing will add more than 50 varieties of native plant species to the existing 8,000 square meters of gardens at Evergreen Brick Works. There are also plans under way to develop a similar garden space in Leamington, Ontario with a local community partner.

This initiative is sure to provide positive public relations for Aphria, and just as importantly, it will promote the vision of enhanced education and access to plants within the community. In the words of Aphria's interim CEO:

"Finding ways to give back and fostering stronger, healthier communities everywhere Aphria operates is the core of who we are … Through … [this program], we hope to make a meaningful impact on people's lives."

Interim CEO Simon is aiming for the skies with a plan to achieve one billion Canadian dollars in sales by the end of 2020.

CFO Carl Merton stated that the company is adding more processing capabilities, and the company intends to expand its cannabis cultivation capacity from 115,000 kilograms to 255,000 kilograms. Along with this, Simon claimed that the global cannabis market has the potential to reach $150 billion, including both medical and recreational cannabis.

Analysts opinions…..

Seaport Global's Brett Hundley has a bullish outlook, as he's maintaining a "buy" rating on Aphria stock, along with $13 price target – more than double the current share price.

Moreover, Hundley has published recent sales estimates for fiscal year 2020 at C$520 million, followed by C$851 million for fiscal year 2021.

Several other equities analysts have recently commented on the company…..

  • Clarus Securities started coverage on Aphria in a research report on Tuesday, April 16th. They issued a “buy” rating and a $22.75 price objective on the stock.
  • Jefferies Financial Group restated a “buy” rating and issued a C$15.00 price objective on shares of Aphria in a research report on Friday, May 24th.

Four equities research analysts have rated the stock with a hold rating and five have given a buy rating to the stock. The company has a consensus rating of “Buy” and an average price target of $14.75.

Summary…..

For a well-known asset listed on the New York Stock Exchange, Aphria stock is surprisingly affordable. Don't be tricked into thinking that cheap means low-quality, though, as APHA has a $1.68 billion market cap and plenty of trading volume, to the tune of several million shares traded daily.

Still, APHA shares are "cheap" in that they're a good value right now. Aphria stock is much closer to its 52-week low of $3.75 than its 52-week high of $16.86, indicating that APHA is capable of going much higher and is probably just weighed down by overall sector weakness.

Aphria has a 12 month low of $3.75 and a 12 month high of $16.86. The stock has a 50 day moving average of $6.91. The stock has a market cap of $1.64 billion, a price-to-earnings ratio of 44.43 and a beta of 3.12.