With 2019’s smoking nearly in the rear-view mirror, could 2020 be a year for investors to grow the color of money in Aphria (NYSE:APHA) stock? Let’s see where APHA is off and on the price chart. Then I will offer a stronger, risk-adjusted determination on how to position in shares.
Any investor with even a passing interest in the stock market knows it’s been a tough year for cannabis stocks. Canadian-based producers from Tilray (NASDAQ:TLRY) to Aurora Cannabis (NYSE:ACB) or Cronos (NASDAQ:CRON) and even the industry’s largest, Canopy Growth (NYSE:CGC), all saw punishing stock declines in 2019. And Aphria stock wasn’t an exception either.
By and large the pressure in cannabis stocks this year hasn’t been without merit. Investor optimism so rampant in 2017 and 2018 ultimately caved to a reality with ever-growing risks. From larger-than-forecast losses, squeezed margins, supply gluts, slow-to-open distribution channels and regulatory challenges around every corner, there were ample reasons for Wall Street to turn more uniformly skittish.
Many of these publicly listed cannabis producers are now banking on the recent legalization of edibles, vaporizers and infused beverage products in Canada to usher in a happier 2020. It’s been coined Cannabis 2.0. It just might work, too. But Aphria is betting smartly on another industry angle that’s already bearing some fruit for its shareholders.
APHA’s focus on the sale of medical-grade THC resulted in the company turning a profit in its most recent quarter. It’s a far cry from its peers who uniformly announced wider-than-forecast losses and reduced outlooks. What’s more, the quarter for APHA stock wasn’t a one-off event.
Aphria has produced profits in four of its last five quarters. Additionally, Aphria stock has been careful to not move too fast during 2019’s downturn. This should mean if the legal environment improves in 2020, an already profitable APHA stock which also boasts virtually no debt and money in the bank will be in strong financial position to further grow a successful business.
Aphria Stock Monthly Chart
Source: Chart by TradingView
For contrarian-minded investors, 2019’s bear market in Aphria stock appears to have completed this month. On the provided monthly view we can observe APHA shares confirmed a double-bottom pattern after this month’s price action traded above the high price of November’s hammer candlestick. By itself, the potential low is only somewhat interesting. What makes the bottom more compelling are three additional supports.
First, the pattern has completed around the lifetime 76% retracement level with both bottoming candles piercing the Fibonacci support. Second, this bottom lines up with a two-step or mirror move pattern. This formation completes once leg CD matches the size of leg AB. Lastly, APHA stock’s stochastics are on the cusp of a bullish crossover at oversold levels.
Bottom Line on APHA
So, what now? My recommendation is to put Aphria stock on the buy list as a second attempt purchase. I’d look to buy APHA if shares can demonstrate a second round of strength and trade back above the November high of $5.41 without breaking the hammer low.
A second attempt entry often yields good results as many investors throw in the towel if the initial signal fails to deliver immediate gratification. In this instance, the purchase would also have the likely benefit of a stochastics crossover backing the buy decision.
If Aphria stock does result in a position, I’d suggest a stop-loss below $4.74. In my estimation that’s sufficient leeway to avoid potential larger losses. And if there’s another whiff of Cannabis 2.0 on the APHA price chart, taking initial profits between $7.00-$7.50 has smart money written all over it.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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