Pot Stock Presents Favorable Risk/Reward Setup Right Now

The pot stock could benefit from a shift in sentiment

Digital Content Manager
May 25, 2021 at 9:21 AM
facebook twitter linkedin

Canopy Growth Corp (NASDAQ:CGC) is getting a much-needed pick-me-up this morning, after MKM Partners upgraded its rating on the struggling stock to a "buy" from "neutral." The analyst cited the extremely low sentiment surrounding the stock, calling its current risk/reward profile very favorable. In response, CGC is up 3% at $23.36 before the bell. 

Regarding low sentiment surrounding CGC, MKM Partners isn't wrong. Of the 14 analysts covering the stock, only two called it a "strong buy" coming into today, compared to nine "hold" ratings, and three "sell" or worse ratings. Meanwhile, the equity's 12-month consensus price target of $28.68 is a 26.5% premium to last night's close. 

This hesitancy among the brokerage bunch isn't completely unwarranted. CGC has been cruising lower on the charts since breaking out toward a two-year high of $56.50 in early February. The shares have plateaued just above the $22 level earlier this month though, and still sport a roughly 17% year-over-year lead. Plus, the equity is set to close back above its 10-day moving average, which has put pressure on shares for most of May.

The equity could also benefit from an unwinding of short interest, which climbed 25.6% in the last two reporting periods. The 15.28 million shares sold short make up a solid 6.4% of CGC's available float, and would take three days to cover at its average daily pace of trading. A short-term bounce might already be on the horizon for CGC, too. This is per the stock's Relative Strength Index (RSI) of 35, which sits just on the cusp of "oversold" territory. 



These investors are using the market's volatility to their advantage and scoring triple-digit gains on many of their trades.

Even in today's sideways bear market, this trading strategy has continued to provide consistency and profitability to a small group of investors. By using this approach, these traders are removing directional risk and still hitting triple-digit returns. If you want access to this strategy, and lower risk with higher returns sounds good to you, then don't wait another minute.

Join us now to receive our next trades the moment they come out!


Common mistakes options traders make


Special Offers from Schaeffer's Trading Partners