March 31, 2014 - Sector Rotation with MCIG and PM but not NTRR(edit)
Before reading this article, please read this one first: https://blogmask.herokuapp.com/posts/Mjk0/private-traders-financial-blog---start-here.
Friday MCIG traded marginally lower at .72 per share. I bought some shares at approximately .69 and some at .81, so I don't plan on selling my MCIG anytime soon. If MCIG goes down below .69 again, and I happen to see it happen (as I did last week), I might even buy more shares. If I see MCIG rise to over $1.00 per share, I still might not sell because I'm interested in acquiring Vitacig shares as a dividend. Of course, the market may change at any time, and In the mean time, what would I do if I have cash in my brokerage account? Diversify into another, larger tobacco stock, like Phillip Morris (PM).
Why consider diversification and risk / reward ratios? Search online and you will see professional financial advisors often have websites that illustrate the value of a balanced portfolio. Diversification appears to be happening in markets over the last few weeks. Diversification can be in sectors and also in the sizes of companies, or just the percentage allocation of various stocks in your portfolio.
While MCIG seems like a great company, I figure it's new and for reasons I can't foresee, the stock could go down to 0. Ouch!
From what I've read, the recent market correction appears to have large institutional buyers favoring defensive sector stocks. Defensive sector seems to include consumer staples, oil, perhaps infra-structure or "essential to continue life as we currently know it" type stocks. In contrast, technology, and bio-technology stocks ("life will be better in the future with this new service or product") have gone down.
MCIG is, in my opinion, both a technology stock (ecig) and a consumer staples stock (providing an arguably safer form of nicotine than traditional tobacco cigarretes). It is also a bit of a Momo (momentum) stock because it also falls in the legal marijuana / medical marijuana sector, which is growing fast.
My hope is that MCIG is able to especially market itself especially in Colorado and Washington, and all states, such as California, where medical marijuana is allowed. By limiting and focusing it's marketing efforts, I think it will have a better chance at later competing with Big Tobacco.
MCIG, IMO needs to build brand loyalty so new companies like Neutra Corp. (OTCBB: NTRR) decide that the marijuana eCig niche is too well dominated by MCIG for it to be worthwhile to add more competition.
For example, here is a link to a recent Business Wire article regarding NTRR.
The article tends to show that NTRR believes it can get in on the marijuana e-cigarrette market at the same time as MCIG. MCIG may not be the first or only marijuana eCig, but it needs to, by far, become the most popular brand to establish a moat. By moat, I mean clear dominance that makes it difficult for competitors to enter their marketing area. This takes time. Certainly NTRR is at a slight disadvantage by the fact that it is not the first mover in this space. Also, it appears that it does not have, nor is attempting to, clean up it's finances to potentially enter the NASDAQ. My understanding is that this is an important goal of MCIG. It's clear that MCIG is rapidly becoming known as a leader in the marijuana ecigarrette space, because the the press release by NTRR says:
By providing innovative nutraceutical products and services such as the vaporizer pens being produced by DA, Neutra Corp. plans to follow in the footsteps of other successful public companies including Herbalife Ltd. (NYSE: HLF), Vitamin Shoppe (NYSE: VSI), Nutraceutical International Corp. (OTCBB: NUTR) and mCig, Inc. (OTCBB: MCIG).
Yet, Herbalife is being massively shorted and investigated by the federal government as a pyramid marketing scheme. Vitamin Shoppe and Nutraceutical, so far as I understand, sell vitamins that could easily be found in retail stores. In contrast, MCIG is just now planning to place its product sales into physical retail stores. MCIG appears well aware that marijuana products are not as easy to put on retail shelves as Vitamins (and so it has a whole separate Vitacig product planned).
In contrast, by saying it plans to follow other health and vitamin product companies, NTRR seems to want investors to believe that it's vaporizer pens are likely to be just as easy to market as diet mixes and vitamins. Then it mentions that it plans to follow MCIG - itself is still busy figuring out how to best capture the retail market.
For diversification, consider Big Tobacco. That would include Phillip Morris (PM), Reynolds American (RAI), Lorillard (LO), and perhaps some other companies I can't remember.
Since MCIG is a small cap, but in the right sector for the current season, I have also bought shares of PM (at around $81/share).
PM is a defensive sector stock too, but less vulnerable to attacks by companies such as NTRR. PM trades for a much higher price than MCIG, but by percentage, it might still rise as fast or faster. Even buying 10 shares of PM (for approximately $850) would be a good way to balance out a stock portfolio with too many small or micro-cap stocks.
Frankly, if you have shares in MCIG, to diversify and balance risk / reward, I'd consider buying shares of Phillip Morris (PM). I might consider buying more shares of MCIG. Unless I felt like being an April Fool, I would not buy one share of Neutra Corporation (NTRR).