Why Bank of America is Buying Weed Stocks ACB and CGC

Both ACB and CGC are trading atop key trendlines

by Josh Selway

Published on Apr 17, 2019 at 9:13 AM
Updated on Apr 17, 2019 at 4:31 PM

One of today's most notable headlines from Wall Street came out of BofA-Merrill Lynch, which initiated coverage on marijuana stocks Aurora Cannabis Inc (NYSE:ACB) and Canopy Growth Corp (NYSE:CGC) with "buy" ratings. Aside from the bullishness of the note, it's also noteworthy because so few Wall Street firms have yet to weigh in either way on the pot industry. For example, only three analysts are covering ACB at the moment, and CGC has just eight brokerages in coverage.

But going back to Bank of America's note, the firm's analysts believe Aurora and Canopy Growth are well positioned to serve the global marijuana market. Aurora, the note said, can benefit from a low-cost business model, while Canopy has shown the ability in Canada to build scale, suggesting it can excel in new areas moving forward.

ACB shares are set to open the day up more than 3%, with BofA setting an $11 price target. The stock closed Tuesday at $8.88, and appears to be in consolidation mode after a recent rejection near the $10 mark. However, the equity could find technical support from the 50-day moving average, which sits right near the site of last month's bull gap.

CGC, meanwhile, received a $52 price target, and is trading up almost 4% in pre-market action, after recently finding support from the 200-day moving average. Canopy Growth is already up 55% in 2019, yet short interest continues to climb, putting four days' worth of buying power into these bears' hands, based on average daily trading volumes. As such, a short-squeeze is something to pay attention to with CGC.

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