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Canopy’s Cash Crash; Cyber Contract; Costco Cleans Up

Canopy’s Cash Crash; Cyber Contract; Costco Cleans Up

Consumer spending crashes, China-U.S. clashes, Canopy cannabis collapses … Welcome to a typical market Friday in 2020.

Friday Four Play: The “Roof Is on Fire” Edition

If you had the “riots and looting” square on your Revelations bingo card … today’s your day. Go ahead and cover that square up. It’s been that kind of year, you know.

And if you’re still worried about covering up that “World War III” square … don’t give up hope just yet. President Trump spoke on U.S.-China relations today, taking a hard line against Beijing’s new Hong Kong security law.

Outside of Revelations bingo, the U.S. Commerce Department reported that April consumer spending plummeted 13.6% in April. It was the largest drop since the government started to track consumer spending in 1959.

And finally, President Trump and Twitter Inc. (Nasdaq: TWTR) are locked in an online death match over free speech. I’m honestly surprised neither side has Godwin-ed this debate yet. Give it time, though. This is an internet fight, after all.

My, aren’t we just bursting at the seams with good news today?

Wait … I have some good news just for Great Stuff readers! (And no, it isn’t that I saved a bunch of money on my car insurance.)

Even amid all the carnage, Paul Mampilly found a company that he believes is set to soar 300% or more in the coming months. On Tuesday, Paul issued a broadcast covering his simple strategy that has helped him pull these double- and triple-digit winners from the market year in and year out.

(Psst, this is the “300 Event” that I was telling you about!) And it’s not too late to check out Paul’s interview covering this strategy.

Click here to see it before the video is taken offline.

And now for something completely different … here’s your Friday Four Play:

No. 1: Crushed Canopy Leaving Linton

Canopy Growth Corp. (NYSE: CGC) finally ditched its spendthrift past.

Canopy Growth Corp. (NYSE: CGC) finally ditched its spendthrift past.

The Canadian cannabis company reported a fiscal fourth-quarter loss of C$1.3 billion, or C$3.72 per share. Most of Canopy’s loss came from a C$750 million write-down due to unprofitable spending projects. Those projects were the brainchild (brainchildren?) of former CEO and founder Bruce “Loose with the Loonies” Linton.

And if you think that’s an unfair characterization of Linton, just note that Canopy had negative cash flow of C$1.5 billion last year under his leadership.

The rest of Canopy’s problems, however, arose from falling cannabis demand. In fact, sales of “Cannabis 2.0” products such as softgels, oils and edibles fell 31% in the fourth quarter. It’s not a positive sign — especially when your main customer base is stuck at home with nothing to do but get high.

Given that the last of Linton’s heavy spending is now off the books, Canopy may indeed turn things around going forward. As such, today’s 20% haircut could be a buying opportunity.

Still, before giving it the Great Stuff stamp of approval, I’d like to see sales improve in the Cannabis 2.0 department … and overall.

No. 2: The Cost of Being Clean

We all knew that bulk toilet paper purchases weren’t enough to sustain Costco Wholesale Corp. (Nasdaq: COST) for long — but I think analysts got a little too excited about those prospects.

We all knew that bulk toilet paper purchases weren’t enough to sustain Costco Wholesale Corp. (Nasdaq: COST) for long — but I think analysts got a little too excited about those prospects.

Costco reported fiscal third-quarter earnings last night and whiffed on both top-line and bottom-line expectations. On the bright side, sales were up 7% year over year. Same-store sales rose 4.8% and online sales spiked 65%.

In the end, however, Costco’s best efforts just weren’t enough to live up to Wall Street’s standards. Earnings came up $0.07 short of expectations, while revenue was $550 million shy of the consensus estimate.

The biggest detractor was a $283 million pretax charge “from incremental wage and sanitation costs related to COVID-19.” Aah, the hidden costs of keeping shoppers and workers safe.

Well, they’re not hidden costs — just unexpected costs. OK, they’re expected costs, just not by the geniuses who guessed what Costco would earn last quarter amid a freaking pandemic.

I have to say: Despite the company missing analysts’ expectations, Costco is among the most stable retailers to invest in as we head into whatever the economy and market throw at us this year.

It’s right up there with Walmart Inc. (NYSE: WMT), Amazon.com Inc. (Nasdaq: AMZN) and The Kroger Co. (NYSE: KR). I also hear that Target Corp. (NYSE: TGT) is on fire right now — too soon?

Editor’s Note: Predicting what stocks will do before earnings is pure speculation. That’s why earnings expert Chad Shoop waits till after the earnings dust settles … and then strikes on his “profit trigger.” Learn how you can too. Click here!

No. 3: GE’s Larry Is Very Scary

General Electric Co. (NYSE: GE) CEO Larry Culp reiterated a warning this week that GE shareholders didn’t want.

Can investors not get this through their heads? Right now, airplanes and airline travel = bad.

This will remain true until a cure or vaccine is available for COVID-19. It’s a fact that General Electric Co. (NYSE: GE) CEO Larry Culp reiterated this week — a reminder that GE shareholders didn’t want.

“GECAS, not surprisingly, is seeing a good bit of pressure here relative to customer deferrals,” Culp said Thursday. GECAS is short for GE Capital Aviation Services, i.e., GE’s aircraft financing arm.

Culp also noted that second-quarter industrial free cash flow would be between negative $3.5 billion and negative $4.5 billion. Finally, write-downs related to the company’s aviation backlog would grow in the same quarter.

This little revelation caused GE stock to drop from Robinhood’s No. 1 most-held stock to No. 2. behind Ford Motor Co. (NYSE: F). Still, No. 2 for a company that relies on the airline industry amid a pandemic?

If you’re invested in GE right now, you probably believe that the COVID-19 situation will get better sooner rather than later. Bully for you. Personally, I’m not that optimistic.

No. 4: Virtual Virus-Fighting

Other than sounding like a knockoff shower cleaner, Zscaler just made it to the cyber security sector’s VIP back lounge. The golden ticket? A freshly inked Department of Defense contract.

If Costco was among the first household-name stocks people bought for the pandemic, Zscaler Inc. (Nasdaq: ZS) might’ve been one of the last. And if any of you out there have been riding Zscaler’s 142% post-crash Zsurge, let me know … Zseriously.

(What? Adding “Z” to things isn’t hyper radical anymore? Pshh … take me back to ’95.)

Other than sounding like a knockoff shower cleaner, Zscaler just made it to the cybersecurity sector’s VIP back lounge. The golden ticket? A freshly inked Department of Defense contract.

See, most cyber defense stocks are a dime a dozen these days, with a few rare exceptions. The only difference is that, this decade, cybersecurity now has “cloud” in front of it. Ain’t that futuristic!

But the Defense Department’s contract lends some credence to Zscaler’s security chops. It proves the company can hack it at the international level against some serious threats.

At the very least, it was a cheap-enough deal. We’re talking about government contracts, after all.

Throw in some work-from-home magic, and you’ve got a cyber-security champ. Zscaler also reported that revenue shot up 40% to hit $110.5 million — and earnings more than doubled what analysts expected.

With its impressive quarter boosting the stock to all-time highs, ZS investors — whomever they may be — can go into the weekend giddy with glee.

From obscurity to … somewhat less obscurity, Zscaler proved that it isn’t your Norton antivirus, no sir or ma’am. And if you’re still paying out your hard-earned cyber cash on that “virus disguised as antivirus” … let’s talk.

Great Stuff: Solitude Is Bliss

Dear reader, between the time I click “send” and the time you read this…

I hope World War III hasn’t been declared or that the world hasn’t gone up in (more) flames … and that the daytime shoppers haven’t bought all the good toilet paper by the time I get to the store.

We sincerely hope you stay safe and well out there! And do try to have a good weekend — regardless of whatever Twitter battles wage into the wee hours! Take some time to stretch your bones and recharge. We here at Great Stuff certainly will.

And while you’re relaxing, send a message to GreatStuffToday@BanyanHill.com with any comments, questions or random tangents and diatribes. You can always hear more from us on Facebook and Twitter too.

Until next time, stay Great!

Joseph Hargett

Editor, Great Stuff

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