Time to buy cannabis (shares)
By Vincent-Frédéric Mivelaz
After a selloff from July to mid-August, the cannabis industry is facing risk-off sentiment. The industry benchmark, the North American Marijuana Index, fell as much as -10.16% during that time. But fundamentals remain intact. As legalization of recreational cannabis in Canada approaches on 17 October and US legislation is expected that would force the federal government to respect state laws on marijuana, continued global expansion is expected.
Constellation Brands, a large player in alcohol (Corona beer), has invested CAD 5 billion in Canopy Growth, its exclusive Canadian cannabis partner. The gives Constellation 38% ownership, assuming warrants are exercised. This largest-ever investment in cannabis will build and acquire assets in both medical and recreational cannabis across five continents. Similarly, a recent partnership between CannTrust and Grey Wolf Animal Health confirms the scalability of the cannabis industry. A recent forecast for the global companion animal healthcare market is estimated at $ 20 billion by 2023, an annual growth rate of 9% from 2017. Recent financials published by CannTrust confirm the growth potential, with annual revenues up 99.28%.
Cisco focus pays off
By Vincent-Frédéric Mivelaz
Thanks to an increase in recurring revenues of 32% and an annual increase in deferred revenue of 23% with a stable customer subscription base accounting for 56% of total software revenue, Cisco is set to reach its forward guidance for Q1 2019 (end of October 2018). Forecasts expect revenue growth rate of 5-7%, and an EPS of $0.69-0.74. Cisco’s recent acquisition of Duo Security in early August for $ 2.35 billion, to leverage its Security business by the use of the Multi-Factor Authentication technology, should help the company to reach its $50 billion revenue target by 2019.
Cisco’s product strategy is paying off, and most investors won’t deny it. After announcing its Q4 forecasts in 16 May 2018 of annual revenue growth 4-6%, some investors scoffed, pushing the share down about 5% in two days. But this did not last. Cisco rose to $45.80 at market opening (+4.50%), strongly boosted by Q4 earnings at $12.84 billion (+6%), its highest on record and higher than analysts’ expectations ($12.77 billion). Net income and EPS are given at $3.8 billion and $0.81 (consensus: $0.69). Average gross margin across geographical regions is maintained at a comfortable 62.90%.
Is EUR/CHF out of the woods?
By Arnaud Masset
Over the last days, the Swiss franc made a solid comeback in the wake of worsening crisis in Turkey and mounting worries of emerging market contagion. After falling more than 5% in early summer as Italy’s election damaged European unity, EUR/CHF fell another 4% over the last month amid trade war tensions. There is no doubt the Swiss National Bank has had a stressful summer, as investors returned to the Swiss franc and safe-haven assets in general.
According to the SNB’s weekly report, the central bank hasn’t intervened in the FX market since July 2017. Total sight deposits have remained stable around CHF 575 billion, with a maximum at CHF 579.7 billion last August. In our opinion, the Swiss franc hasn’t appreciated enough against the euro to trigger SNB intervention. Monday’s report will give the answer. The currency pair currently stands at 1.1360, well above the implicit 1.05 floor. In addition, the euro sell-off looks overdone and easing tensions between China and the US could only help improve overall risk-sentiment. Although we remain cautious in the short-term, EUR/CHF can go only go up in the medium to long-term.
Time to buy emerging market currencies?
By Peter Rosenstreich
Fear of a Turkish currency crisis is now fading. Threats of additional US sanctions on Turkey have had a muted effect; TRY is regaining lost ground. Most currencies are higher against the USD as contagions and risk aversion diminished. The US and USD remains the talk of the town but the panicked flight to this safe-haven has ended. Global equities firmed, led by improvements in the S&P 500 on stronger Q2 earnings. It might be a bit too early to throw in the towel on contagion, but all the indicators are positive.
Tactically speaking, now might be a good time to snap up bargains. Latin America looks especially good, given BRL and MXN are caught up in geopolitics. We expect trade risk to fade into the fall. Currencies have been oversold. While US is white hot we anticipate a slowing in 4Q, allowing emerging markets to rise. Despite the hype, we don’t see a significant change in long term geopolitical relationships (the EU/USA was already in the process of pushing Turkey away). Baring a significant deceleration in China growth, credit issues or rapid repricing of US interest rates, we see further appreciation of emerging market and G10 currencies against the USD.