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The truth about solar, gold and marijuana

Marketwatch readers are some of the most vocal and inquisitive bunch of investors and traders around. Here are the highlights from my emails with readers of The Cody Word from this week. By the way, the Scutify iPad app is now available and it rocks.

Q. Question on how you are using index puts like on the XRT as a hedge. For an account that is otherwise primarily long — how would you typically size such a position? I’ve started to use these but have found it tricky to decide what the right size is for the position to act as a decent hedge without eating into too much of my potential gains so am curious what sort of range you would suggest and how you typically approach sizing a position like this. Thanks.

A. Great question, and as always, my answer would depend upon your own risk-tolerance, income potential, net worth, etc. That said, I’d think that anything less than 1% of your portfolio in broad index puts when you’re trying to hedge would be a waste of time, but that anything more than 3%-4% of that portfolio in broad index puts would eat away at your gains too much to be considered “good” hedges.

Q. I’m seeing some noise from smart door locks that use geofencing and apps to know when to open and close … Looks like an area where tech will be ubiquitous. Wondering if you know a play there yet, or if you think the Schlage’s of the world will just acquire a startup offering the best product in that space?

A. I think that’s low-tech enough that the margins in smartdoors and geolocking, etc will be very low. My dad was proudly showing me his Honeywell app to control the thermostat at his house the other day, and it underscored how badly Google overpaid for its Nest acquisition a few months ago, as I’d suggested at the time.

Q. Afternoon, Cody. The question — always — is gold. Last I heard ( I think), you were looking for one more downturn before the next march higher. Still there? Will you have an opinion after the Fed speaks? I’m doing fine in GDX and wonder if you still like it.

A. I’m likely to just buy some outright Market Vectors Gold Miners ETF GDX +0.47% $GDX and forget it for a year or two. I do think the big banks and the Fed want gold lower and they’re doing everything they can to crash it another time or two before the end-game finally comes some day.

Q. Cody, great call on First Solar. With the 18% rise in one day off FSLR’s earnings, is it time to trim some?

A. With First Solar  FSLR +3.16% projecting up to $6 a share in earnings in 2015, and potential upside to that number, it’s still very cheap if the company delivers. FSLR said it expects full-year earnings between $2.20 and $2.60 a share, and between $4.50 and $6 in 2015. Revenue is growing by more than 33% too. No joke growth. All that said, if you think you’re too heavy in $FSLR, then you should trim some off tho. Maybe a fifth or a fouth of your position or something.

Q. I know you don’t like marijuana penny stocks, but how about the eCig companies like MCIG? 

A. A while ago, I wrote this about mCig Inc MCIG and the eCig stocks: “MCIG is a penny stock that is related to marijuana and is up 1,000%s in the last year and it’s pumping out the hype press releases. You tell me — does that sound unique to you? In other words, I think $MCIG is just another hyped up potpennystock that I’d stay the hell away from. Finally, remember not to play penny stocks … ever!

Q. I don’t understand why you don’t think legalized marijuana will be a huge growth sector.

A. I see a huge upside to medical marijuana and own Calgon Carbon CCC +2.69% and Lindsay LNN +0.58% among others that will actually benefit. That is VERY different from buying crappy penny stocks doing shady deals and issuing hype press releases. Penny stocks are often just scams.

Q. PHOT seems to be the only consistent marijuana stock of the lot. A lot of companies are digging into the marijuana stock industry, and this is the one selling the shovels. Why do you pick on this stock so much?

A. Have you modeled out a payback period for buying GrowLife PHOT Someone actually put some numbers to $PHOT‘s valuation and it’s as ugly as I promised it would be. Penny stock buyers beware.

In the meantime, I promise you that the new Scutify iPad app for investors and traders will be the best one you’ve ever used. $SOXX$GDX, $IYW, $DJIA

Cody Willard writes Revolution Investing for MarketWatch, posts the trades from his personal account at TradingWithCody.com, which is not affiliated with MarketWatch, and is the largest shareholder in Scutify‘s parent company, Wall Street All-Stars. At time of publication, Cody was net long First Solar, Calgon Carbon and Linsday, and net short XRT. Follow Cody on Twitter at twitter.com/codywillard.

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