In this installment of "In The Arena," host Daryl Jones is joined by decorated industry veteran Howard Penney. As Hedgeye's Restaurants, Consumer Staples and Cannabis Sector Head, Howard had lots to share about the industry's evolution and his career as a stock analyst.
Howard discusses his almost 15-year tenure at Morgan Stanley, his decision to move to Hedgeye, and some of his hardest and best stock calls. He also shares an inside look at covering the cannabis industry and much more.
Below is a look at how Howard views his relationship with management teams and why talking to them is essentially useless.
Daryl - "Those sound both like instances where management effectively misled you? I think 100% more than a effectively, they did."
Howard - "Absolutely."
Daryl - "Has that changed your process in terms of looking at stocks? Like do you still rely on talking to management as a component?"
Howard - "It's funny you asked that question because I've stopped (talking to management) effectively coming to Hedgeye. I mean, I still have friends in the industry and a number of contacts in the industry, but if I have come to a conclusion of company, 99% of the time, if I go to a management team and I tell them what my conclusion is. They'll tell me why I'm wrong and if they're a good salesman, they'll convince me I'm wrong. And so then, okay, I'm wrong. You're totally right. I'm usually right."
Daryl - "So basically you just trust your own research and instincts."
Howard - "Right. And since coming here, it's challenging too, because if you put a sell on the company, the management team's not going to talk to you anyway. So effectively over the years I'd probably pissed off every company that I follow. So most of them don't talk to me anyway. But in a certain sense it's helpful because your thought process doesn't get clouded. Because they can only tell you - it goes back to regulation FD. Because they can only tell you what they've told everybody else and they can't change their story until they change their story. And that story is embedded in the stock price anyway. And if you have a different story than what they're saying, they can't tell you "Oh you're right." So it's almost useless."
Howard and his teammate Shayne Laidlaw recently extended coverage into the Cannabis sector below is a sneak peak at his initial thoughts - listen to the full episode to hear what he thinks the next big wave in the sector will be.
Howard - "Frankly, it was amazing to see the passion for the people in the Industry today. You know, thousands of people, tens of thousands of people, frankly, building companies that are effectively in prohibition."
Daryl - "They can't sell in the U.S.?"
Howard - "Well, in states they can but at a federal level, they can't. The federal government saying one thing, the states are saying another, but effectively the federal government's still dominate, what the federal government is saying about cannabis still dictates what's happening. Because, you know, if you're taking a dollar in your dispensary, where do you put that dollar? Because nobody will bank you and that it's softening up a little bit."
Daryl - "But you cannot put it in a federal bank basically."
Howard - "Yea. But it was the passion of the people in the industry that was unique. And they obviously believe the medical merits of marijuana or cannabis."
Daryl - "Is there a stock or a company that you think could, I don't know if this is the right analogy, but that will be the Starbucks or be the big winner in the industry or are there a couple of you guys really like?"
Howard - "There's two. So Cronos is the Canadian LP that we liked - stocks up and done really well. And then we're still discovering the next wave of stocks that are going to do well from the long side of the U.S. multi-state operators that they call them, essentially the dispensary companies and the processors of marijuana."
Keep your eyes (and ears) open as we release a new "In the Arena" podcast every other Tuesday morning.