When two legendary billionaire investors buy up shares of a stock, investors would be smart to pay attention.
The stock in question this time should be a familiar name if you’ve paid attention to the boom in pot stocks: Aurora Cannabis (NYSE: ACB).
Aurora Cannabis is arguably the hottest marijuana stock right now. The stock is up more than 60% so far this year. Analysts rate it a buy and say it could jump another 31% over the next year. And now, at least two billionaires have scooped up shares.
According to recent filings with the SEC, Ken Griffin’s Citadel Advisors and James Simon’s Renaissance Technologies just made big investments on the stock.
Griffin, who estimated to have a net worth around $12 billion, and his Citadel Advisors bought just over $11 million worth of Aurora Cannabis shares in Q1, and bought call options for 1.4 million shares hedged by put options for just over 1 million shares. Citadel also has positions in Canopy Growth (NYSE: CGC), Cronos (NASDAQ: CRON), Tilray (NASDAQ: TLRY), and Innovative industrial Properties (NYSE: IIPR), a cannabis-focused real estate investment trust (REIT), so it’s clear the firm is betting big on the future of the marijuana market.
Jim Simon’s, who is worth north of $20 billion, Renaissance Technologies initiated a position in Aurora in Q1, and dropped more than $7 million on the stock. Aurora is currently the only pure marijuana play in the firm’s portfolio after it sold its shares in Canopy Growth last year.
While SEC filings can tell what these billionaire are buying, they can’t tell us why. But Cowen analyst Vivien Azer—the first major analyst to cover pot stocks—gave a few reasons to love this stock earlier this year when she named Aurora her top pick among pot stocks that can shed some light on why these billionaire’s are buying up shares.
For Azer, and probably for Griffin and Simon as well, the top reason to love Aurora is its industry-leading production capacity.
The company currently has capacity for 150,000 kg and, with the help of new facilities, expects to have the capacity to produce more than 625,000 kg per year by 2020. And with demand outstripping supply in the Canadian recreational market right now, capacity is critical.
Another great reason to love Aurora is its international presence. While the world is looking to Canada’s recreational market, the international medical marijuana market is on its way to becoming far larger than the Canadian cannabis market over the next few years. Aurora is currently active in 24 countries and boasts the highest international revenue of its peers right now, making the company the odds-on favorite to dominate the international cannabis market going forward.
And finally, Azer likes Aurora for its relatively attractive valuation. This stock may have surged so far this year, but the company’s market cap is still just over half that of Canopy Growth.
Now, it’s not all positive for Aurora. The company is not yet profitable and has been burning through a lot of cash funding its operations and expansion efforts. Aurora also has a large number of convertible notes that will probably result in the issue of new shares in the future, which will dilute existing shares.
Still, if you’re eyeing pot stocks now, Aurora looks like a good option. And it certainly helps to know that some major investors are bullish on the company now.