Speculative stock may be best bargain stock of 2016

Investor’s Digest columnist Edward Gardiner may be no fan of the new Trudeau Liberal government, but he names one stock that may be the bargain of a generation if the government follows through with its promise to legalize marijuana.

Justin Trudeau’s first year hasn’t been too surprising. Trudeau the Younger has been in power for about a year now, and so far, other than spending a lot of money, he hasn’t caused too much damage.

That’s probably because he hasn’t made good on his more serious campaign promises. But he has laid the groundwork for some of them, so trouble is on the way.

He kept his promise to Statistics Canada about the long-form census questionnaire and now the number crunchers think they should run the country. Personally, I think many Canadians will ‘punish’ Stats Can by falsifying their answers going forward. After all, your answers are confidential, so you can’t be identified. In the meantime, Trudeau has to explain to the bureaucrats that they can’t have everything their own way.

He also kept the ‘internationalists’ happy by announcing that Canada is ‘back’ at the United Nations. Basically, all he did was suck up to a bunch of Third-World dictators and promise them lots of money. With any luck, he won’t ever have to make good on that promise.

On another note, he laid the groundwork for altering our electoral system. Whatever changes are forced on us, they will likely mean more power for party leaders and insiders and less for the ordinary citizen. I’m not sure what impact, if any, this will have on the markets.

Highly speculative play may be best bargain stock for 2016

His most interesting promise is the one to legalize marijuana. This is the one that probably won him the election by buying the votes of many millennials—a group that has had a poor turnout in recent elections, but managed a much better performance this time around.

I am reliably informed (by members of that generation) that many millennials voted for Mr. Trudeau solely because of his promise to legalize marijuana, despite being warned that the Liberal version will likely include a government monopoly and taxes that will make alcohol and tobacco look cheap.

If you want to take advantage of this opportunity, and have a tolerance for speculative stocks, you might consider Canopy Growth Corp. (TSX—CGC). It has no earnings yet, so I won’t buy it myself, but as a highly speculative stock it may be all right. And in 20 or 30 years, it, or others like it, should be highly profitable. The millennials are going to need those profits to pay for Trudeau’s largesse.

I say 20 or 30 years because that’s about how long it takes for a wastrel budget to work its way through the economy. The bill for Trudeau the Elder’s 1970s budgets came due in the 1990s. To his credit, it was the Liberal Jean Chretien who sorted out that mess, but why create the mess in the first place?

As an aside, I note that the biggest problem with Keynesian economics is that it has never been tried. Governments are always ready to spend to ‘stimulate’ the economy, but are reluctant to cut back spending or pay off debt unless absolutely necessary.

I say the millennials will have to pay for it because we boomers will either be dying off, or struggling to survive on what’s left of our savings after the massive amounts of inflation that will start to hit in 10 to 15 years have ravaged the economy. (Refer back to the early 1980s if you want an historic precedent.)

By that time, the millennials will probably be the largest demographic segment and the only one with any money to be taxed.

If they’re lucky, they will find a 21st-century Chretien (from whatever party) to solve the problem and they won’t suffer any more than their parents did in the 1990s and early 2000s.

If they’re unlucky, Canada will become another Greece. Whatever happens, it’s a safe bet that those who save and invest will be hit harder than those who spend everything they earn.

To be fair, the problems with the Canadian economy are beyond our government’s control. The economy is sluggish because the rest of the world’s economies are sluggish. They are sluggish because investors are reluctant to risk capital when interest rates are so low.

Lowering rates even further and pumping more money into the economy won’t solve this problem. The government needs to find a way to create an environment that is attractive to investors and consumers alike.

Unfortunately, I don’t see that happening any time soon. The government seems to recognize the problem, but is either unable or unwilling to do much about it. The recent tightening of mortgage rules is a step in the right direction, but it is not enough for the long term.

That brings us to what the small investor can do to protect himself or herself over the next few years. The trick will be to find the sectors that the government wants to throw money at and get in there first. The environment (along with energy), health care and infrastructure seem to be the big ones.

On the environment/energy front, I would stay away from companies that are focused solely on a single aspect of those fields. There are not likely to be any major technological breakthroughs by start-ups, no matter how much money the government throws at them.

Things like wind and solar will only become economically viable through a series of small improvements which can best be achieved by existing utilities that are working in the area already.

Any of the companies I have recommended recently would probably be good fits in this area; ditto for infrastructure. Good stock options are Royal Canadian Mint (TSX—MNT) for gold, and  power companies Canadian Utilities Ltd. (TSX—CU) and Fortis Inc. (TSX—FTS). Brookfield Asset Management Inc. (TSX—BAM.A) and WSP Global Inc. (TSX—WSP) are money-makers as well.

Columnist Ed Gardiner is a keen observer of the markets and a frequent contributor to Investor’s Digest of Canada.


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