ASX Friday Rumble: Creso Pharma (CPH.ASX) and BOD Australia (BDA.ASX) fight it out

Muay Thai is the national sport here in my adopted homeland. Known as ‘the science of eight limbs‘ it’s a brutal contest – a knee or elbow to the head is usually enough to finish anyone off.

Back in the day, there was no better place to be on a Friday night than Lumphini Stadium, chugging an icy cold Chang beer while watching the local lads going to work on each other.

The now defunct Lumphini boxing stadium – courtesy of Vice

Sadly it closed in 2014 with the action moving to Rajadamnern stadium. Everything ends, eventually.

In light of that, this week’s edition of the fumble is more like a rumble. We’ve picked two ASX weed stocks which are sitting around the same price level, yet whose charts are telling us very different stories.

It warrants further investigation.

Bod Australia vs Creso Pharma – Head to head

Firstly, the chart of BOD Australia (BDA.ASX) which recently caught our eye – it’s holding up rather nicely.

MarketIndex chart with annotations

After powering higher early this year, BDA has built a solid base between 40c and 60c. It sits at the top of that range as we speak, closing at 61c Thursday, August 30, 2018.

Astute market technicians will also recognize the ‘cup and handle‘ pattern clearly visible on the chart. This pattern is a bullish chart signal and points to higher prices in the near term.

The chart is screaming breakout, and if that occurs and the stock is able to hit a new all-time high then a price target of 80c looks feasible given the extension of the base from the previous high.

Compare the price action of BDA to that of Creso Pharma (CPH.ASX), pictured below.

MarketIndex chart with annotations

CPH shares have been in a steady (textbook, almost) downtrend for all of 2018. Those ‘sophisticated investors‘ who stumped up $1.10 for stock late last year aren’t looking so sophisticated right now unless they know something the market doesn’t.

So far the stock is showing no signs that the downtrend has finished, which will only become evident in hindsight.

Chalk and cheese, these two.

Tale of the tape

Photo by Pablo Rebolledo on Unsplash (Hacked by us)

Creso Pharma (CPH.ASX) – The Pretender

Boy, are we glad we sold our CPH holdings earlier this year when it was trading around the $1.00 mark. Turned out to be a timely exit.

Back then we highlighted 3 reasons why we thought the stock was headed lower:

1. Technically the stock looks fragile. Rallies aren’t sticking.
2. Management’s strategy is confusing the market
3. The capital raising overhang is now a roadblock to higher prices

Our call was right on the money. Played out as we thought it would and we got out of the way. Phew.

Creso just announced a net loss after tax of AUD 7.58 million for the half-year ending June 30, 2018.

Gross profit for the same period came in at $162,140. Cash on hand was reported as $11,353,899 so there’s still something left in the piggy bank.

The market discounted the poor financials. Already baked into the stock price at that point, we believe.

After all, CPH shareholders have watched their holdings erode by 35% this calendar year alone. Like copping a left-hook to the chin.

One could hardly call the entitlement issue a success. A total of 24,377,710 options were issued raising gross proceeds of $1,218,885.50. Given the directors of the company chipped in $518,648 of the total raised, that means the majority of existing shareholders at the record date decided to bypass the offer.

In an about-face, Creso have applied for quotation of the options recently issued through the Non-Renounceable Entitlement Issue.

This is a good development for anyone holding the options.

Bod Australia (BDA.ASX) – The contender

We like BDA. So much so we named them as ‘one-to-watch’ for the rest of 2018 when we last completed an ASX weed ’round-up’.

If you don’t have time to trawl through the charts and commentary below, here’s our suggested starting hand for the remainder of 2018

AC8 ♠ BDA ♥ BOT ♣ CAN ♦ EXL

They haven’t let us down.

Their June 2018 Quarterly Activities report looks the goods.

The company is fighting fit, in fact, during the quarter they pulled in more than twice the cash than Creso reported for the half-year.

Impressive.

Operationally the business is performing strongly with record cash receipts of $375,000 achieved (96% increase on Q3 FY2018: $191,000) – New products and increased distribution network underpinned growth – BOD Australia

Irrespective of where longs purchased their holdings in BDA, they are likely sitting on decent profits, especially those who picked up the stock in 2017.

Final thoughts

The market rewards those companies doing well and punishes those doing poorly, as it should.

Our job as investors is to make the critical decision of where to deploy risk capital.

If you had a chunk of change to invest and were looking at these two names which way would you lean?

The answer should be obvious.

Your ASX commentator,
–// Craig Amos

(feature image via GIPHY.COM)

FULL DISCLOSURE: Neither BOD Australia nor Creso Pharma are Equity Guru marketing clients.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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