Improving Guidance May Send This Sector Back Toward a High

Most companies are having a solid year, even when comparing their sales and earnings to post-pandemic quarters. However, a few sectors haven’t fared too well in recent months and have missed out on most of 2021’s gains.

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  • One such area is with pot stocks. These companies were popular at the start of the year, but have since been lagging the overall market. But that may be about to change.

    For instance, one industry leader, Tilray (TLRY) moved higher even after reporting a loss last week. The company saw revenues rise, and while it missed on earnings, the company guidance suggests that cannabis sales remain strong.

    Shares of this company, one of the largest in a small but growing industry, are off a whopping 85 percent from their all-time high. Even with that steep of a correction, shares are up 75 percent over the past year, illustrating just how bullish investors got at the start of 2021.

    Action to take: With the industry growing rapidly, and with more states legalizing pot, shares look well oversold and ready for a rebound going into the next year. Investors may like shares for a rebound, simply to avoid the declining time premium associated with options.

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  • For traders looking for a bigger move, the March $15 calls, last going for about $1.15, offer an inexpensive exposure to a move higher. Shares will need to rally nearly 40 percent for this trade to move in-the-money, so traders may want to look to sell contracts on any rally higher from here.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.