The S&P/TSX Composite Index fell 75 points on April 19, while indexes south of the border were also battered in spite of relatively strong earnings for companies on the S&P 500. Geopolitical tensions have cooled somewhat after the White House contradicted a pledge from U.S. ambassador Nikki Haley to the U.N. that further sanctions on Russia were forthcoming. There also appears to be progress in negotiations between North Korea and the United States.
The loss on the TSX broke a five-day winning streak. Two companies that we will look at today had some good news to draw on, but they appear to have squandered that momentum as we move into the fourth week of April. Should you look to add either one of them to your portfolio in the near future?
Aphria had dropped over 40% in 2018 as of close on April 19. Shares initially surged on April 13 after President Trump promised Senate Republican Cory Gardner that he would support congressional efforts to protect states that have legalized cannabis. Aphria had been one of the most vulnerable Canadian producers due to its U.S. investments.
The surprise move is a sharp deviation from Trump’s attorney general Jeff Sessions, who has taken an adversarial role against recreational cannabis use. The move opens the door for Canadian producers to explore U.S. investments without fear of federal reprisal.
Aphria also released its fiscal 2018 third-quarter results on April 16. Revenue more than doubled year over year to $10.26 million, and net income rose to $12.9 million compared to $4.9 million in Q3 fiscal 2017. Profits were boosted by the sale of Liberty Health Sciences shares. Adjusted EBITDA soared 238% year over year to $2.9 million, and the company announced that its focus had shifted to an aggressive inventory build in preparation for recreational legalization in the late summer and early fall.
Maple Leaf stock dropped 2.6% on April 19, and shares had plunged over 12% in 2018 before trading opened on Friday. The food producer, which focuses largely on poultry and pork, has seen its shares plummet since it released its 2017 fourth-quarter and full-year results on February 21.
In 2017, Maple Leaf saw sales rise 5.7% from 2016 to $3.52 billion, but net earnings fell 9.7% to $164.1 million. Earnings were impacted by unrealized losses on derivative contracts, restructuring costs, and shifting value in biological assets. Nonetheless, Maple Leaf raised its dividend to $0.13 per share, representing a 1.5% dividend yield.
Most recently Maple Leaf announced that it was providing Series A funding to Entomo Farms, an Ontario-based company that farms insects for human consumption. Entomo Farms said it would use the cash to expand production of cricket and mealworm ingredients that are used in products like protein bars, smoothies, and even pasta sauces.
Food prices have climbed in 2018 due to higher-than-expected inflation so far. Maple Leaf’s expansion into meat alternatives also holds promise considering consumer trends.