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3 Stocks I've Bought or Bet Against in November

By Sean Williams - Nov 24, 2021 at 6:06AM

Key Points

  • One industry's growth potential is so enticing, it accounted for both purchases this month.
  • Meanwhile, the valuation for one hot IPO has this Fool hitting the brakes.

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This Fool is sitting on a record amount of cash and is finally putting some of it to work.

Whether investors realize it or not, they're navigating their way through a historic period for the stock market. During the first quarter of 2020, the broad-based S&P 500 saw its quickest plunge of at least 30% in its storied history (it took about a month). This was followed by the strongest bounce back on record, with the S&P 500 taking less than 17 months to double from its pandemic trough on March 23, 2020.

During the coronavirus crash, I deployed pretty much all of my available capital and purchased or added to more than a dozen stocks. But since the S&P 500 hit its trough, my cash balance has been building.

This month, I've found a few opportunities to put some of this cash to work. Here are three stocks I've added to, bought for the first time, or bet against, in November.

A person writing and circling the word buy beneath a drop in a stock chart.

Image source: Getty Images.

Added to: Jushi Holdings

The first company that had me seeing green in November is marijuana stock Jushi Holdings ( JUSHF -0.52% ). I initially bought into Jushi in August, added to my stake again in September, and made my largest share-based purchase to date in early November.

To clear the air, I'm not in the least bit concerned that Congress hasn't been able pass cannabis banking or legalization reforms at the federal level. Most U.S. multi-state operators (MSOs) are built in such a way that state-level legalizations provide more than enough growth potential to become wildly profitable. With 36 states having legalized weed in some capacity, there's plenty of opportunity for pot stocks to thrive in the U.S.

As for Jushi, there are three things I particularly like about the company. First, there's a focus on limited-license markets. A limited-license market caps how many dispensary licenses regulators issue in total, and often to a single business. In Jushi's case, it's targeting three core markets: Pennsylvania, Illinois, and Virginia. The former two are traditional limited-license states, whereas Virginia assigns licenses based on jurisdiction. The point being that Jushi is protected from larger competitors with deeper pockets by this purposeful licensing assignment. This'll allow the company to successfully build up its brand and gain a healthy following in these potential billion-dollar markets (Illinois already hit $1 billion in pot sales in 2020).

Second, Jushi's insiders and executives have skin in the game. Of the first $250 million in capital raised by the company, approximately $45 million came from insiders and executives. Generally, when the interests of insiders align with shareholders, good things happen.

And third, Jushi looks to be an absolute steal relative to its peers. With 26 operating dispensaries and 39 total retail licenses in its back pocket, taking into account pending acquisitions,  Jushi offers some of the fastest growth potential in the cannabis space. Sales are expected to catapult from close to $81 million in 2020 to $467 million by 2023, according to Wall Street estimates. What's more, the company should turn the corner to profitability next year. That's a bargain for a company carrying a market cap of just $757 million, as of this past weekend.

Multiple rows of clear jars set on a dispensary counter that are packed with unique strains of cannabis buds.

Image source: Getty Images.

Bought for the first time: Columbia Care

Just days before making my third purchase of Jushi Holdings, I made my initial purchase of U.S. cannabis MSO Columbia Care ( CCHWF -7.79% ). That's right, folks... it's been a pot-stock-buying sort of month.

Whereas Jushi offers me the opportunity to buy a relatively small MSO building from the ground, Columbia Care gives me the opportunity to take advantage of growth from a larger base. According to the company, it operates 130 facilities, 99 of which are dispensaries.  Keep in mind these figures include facilities that are under development. The roughly 100 retail locations will make Columbia Care one of the biggest marijuana retailers in the country.

One the biggest growth drivers for Columbia Care is the company's penchant for acquisitions. On the same day I made my initial purchase, Columbia Care announced the completion of its Medicine Man buyout. The $42 million deal bolsters the company's presence in Colorado, which ranks as the No. 2 market for weed sales in the United States.  Additionally, Columbia Care closed a $240 million buyout of Green Leaf Medical in mid-June. This deal gave the company a sizable presence in the mid-Atlantic region. 

On one hand, an acquisition-heavy strategy exposes Columbia Care to higher upfront costs, integration delays, and potential regulatory snafus -- the latter of which has been a problem this year. On the other hand, this strategy is rapidly expanding the company's reach and should begin paying dividends in 2022. Wall Street is looking for the company's full-year sales to jump from $180 million in 2020 to about $1.1 billion by 2023.

Similarly, Columbia Care is focused on a number of high-dollar and/or limited-license markets. While it's always a good idea to have a presence in California and Colorado, the nation's No. 1 and 2 weed markets, Columbia Care is also generating a boatload of revenue from Massachusetts, Ohio, and Pennsylvania, all of which limit how licenses are doled out.

With a market cap of less than $1.1 billion, I believe Wall Street is grossly underestimating Columbia Care's growth-by-acquisition strategy.

Two Rivian R1T's climbing a muddy road.

Two all-electric Rivian R1T's. Image source: Rivian Automotive.

Sold calls: Rivian Automotive

The third move I made while sitting on a record amount of cash was to sell December 2021 $230 calls in electric vehicle (EV) manufacturer Rivian Automotive ( RIVN -5.51% ).

Since not everyone follows or trades options, here's the gist: If Rivian's share price ends below $230.00 by the close of trading on Dec. 17, 2021, I'll collect the full premium on each contract that I sold, minus the nominal commission fee for trading options contracts with my online brokerage. If it finishes above $230 plus the premium I paid per contract, I'll lose money. In theory, my loss potential is unlimited. In other words, this isn't a bet for the faint of heart. But all things considered, it's a very small bet within my portfolio (33rd largest position out of 35 holdings).

Rivian is soaring for a simple reason: anything related to EVs is hot, hot, hot! Most global economic powerhouses have committed to taking steps to reduce their carbon footprint. The most logical way to do that is to shift to EVs and other alternative energy transportation vehicles. Rivian's EV adventure trucks and its enterprise fleet focus provides a niche where it could be wildly successful over the long run.

The company also snagged a boatload of cash with its initial public offering (IPO). The company raised $12 billion with its IPO two weeks ago, giving it more than enough firepower to expand its production capacity, hire, and innovate.

However -- and this is the key 'however' -- it can't be overlooked that Rivian has no trailing 12-month revenue and is valued at $113 billion. For more than a quarter of a century, investors have been overestimating the adoption of next-big-thing technologies. The chance of Rivian executing a parabolic increase in production capacity without hitting any snags is pretty much nonexistent, in my view.

While you can never say never in the EV space, I simply don't see Rivian being worth $197 billion by options expiration day in less than a month with nothing in trailing sales.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Rivian Automotive, Inc. Stock Quote
Rivian Automotive, Inc.
RIVN
$104.67 (-5.51%) $-6.10
Columbia Care Inc. Stock Quote
Columbia Care Inc.
CCHWF
$2.96 (-7.79%) $0.25
Jushi Holdings Inc. Stock Quote
Jushi Holdings Inc.
JUSHF
$3.80 (-0.52%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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