Stocks To Watch: Top Marijuana Play Near Buy Point Ahead Of Earnings

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At first glance, Scotts Miracle-Gro, featured in today’s IBD 50 Stocks To Watch, is not your typical coronavirus stock. But dig a little deeper and you might be surprised.




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The Marysville, Ohio-based company, with $3.16 billion in annual sales in 2019, normally makes fertilizer, nutrients and other lawn and garden-care products. Its consumer brands include Scotts, Miracle-Gro and Ortho, while its Hawthorne Gardening unit is more of a marijuana play, focusing on the indoor and hydroponics market.

On April 10, Scotts Miracle-Gro (SMG) announced a shift in production at its manufacturing plant in Temecula, Calif. Instead of durable lawn-care gear, it is now producing face shields for health care workers, police officers and other first responders across the U.S. to help protect them against Covid-19. The company’s first donation of 9,000 face shields will go to Temecula and New York, with plans for further donations.

“Our country is facing a challenge unlike anything it’s ever seen before,” Chairman and CEO Jim Hagedorn said in a statement. “During times like this, it’s the responsibility of every citizen, and especially every company, to do the right thing to protect our people and help our country remain strong. I can’t thank our Temecula team enough for the hard work they’ve put in to create these face shields and support our community’s first responders.”

Like most other stocks, Scotts pulled back sharply during the coronavirus stock market crash. It tumbled 39% from a March 4 high to its March 23 low. But shares have recovered 60% since and are now about 5% below a 125.79 buy point, MarketSmith chart analysis shows.

The relative strength line, which compares a stock’s performance vs. the S&P 500, is at a new high as it continues to rise.

Stocks To Watch: Strong Overall Rating

IBD Stock Checkup assigns Scotts a 90 Composite Rating, which combines key institutional ownership, fundamental and technical metrics into a single score. That’s second best in the 14-stock agricultural chemicals group, just behind FMC Corp. (FMC).

However, a 37 Earnings Per Share Rating, part of the overall composite score, is near the middle of the group. That reflects profit declines in fiscal 2015 and 2018, for a five-year compound earnings growth rate of just 5%. However, analysts surveyed by FactSet expect an 18% jump in earnings to $5.27 a share for the current fiscal year ending in September and an 11% increase in fiscal 2021.

A 94 Relative Strength Rating, also part of the Composite Rating, shows Scotts is beating 94% of all other stocks.

Scotts had a tough 2018. The stock collapsed early that year after management said the “slower-than-expected pace of regulatory changes in California” was harming its hydroponics business. Later that year, it expanded that business with a $450 million purchase of hydroponic distributor Sunlight Supply.

That seems to be paying off. In its preliminary results for fiscal Q2 ended in March, Scotts cited a recent surge in demand for both its U.S. Consumer and Hawthorne businesses. It expects a 16%-17% year-over-year companywide sales increase for Q2, with a 55% jump in Hawthorne sales and 12% in U.S. Consumer.

The company is slated to report fiscal Q2 results on May 6.

Follow Nancy Gondo on Twitter at @IBD_NGondo

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