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Shares in GW Pharmaceuticals (GWPH) were soaring Tuesday following a bullish rating from Morgan Stanley analysts. Morgan Stanley gave the British company an “overweight” rating, but it most likely raised eyebrows the most with its price target of $103 a share, a 123.7 percent upside over the closing price of $46.04 on Monday.
The news of the Morgan Stanley upgrade came in tandem with Jim Cramer mentioning the stock as his preferred play for medicinal marijuana during his morning notes on CNBC. This isn’t the first time Cramer has touted GW Pharmaceuticals, but his reiteration may be contributing to the stock’s considerable momentum in morning trading.
Shares gapped up just under 9 percent at the opening bell, trading at $50.10. However, a massive buying spree in the first 40 minutes of trading pushed the price higher on extremely heavy volume. This opening surge pushed the stock over $63.30 a share before settling down as the stock appeared to but up against its 50-day SMA at $62.16 and retreated below that level. However, this was a temporary hold, as the stock started to regain momentum around 10:40 am ET and pushed past $65 to a high of $65.96 prior to 12:30 pm ET. As the afternoon progressed, though, shares retreated and continued trading at or near the 50-day SMA.
The upgrade and Jim Cramer’s vote of confidence sparked the rally, but the stock’s technical factors may have contributed to the momentum swing. The stock had been trading with a 14-day RSI at, just below, or just above the key level of 30, a signal that a stock is oversold. Add this to a 14-day stochastic RSI that traded below 0.20 every day in the last month save 4 and it’s clear that even prior to Morgan Stanley’s optimistic rating the stock had appeal to traders.
What’s more, today’s big upswing pushed the MACD line across the signal line from below, a classic buy sign. While this would be expected any time you see a big move like this, it’s nonetheless notable and could have contributed to the morning furor over the stock.
GW Pharmaceuticals represents an interesting play. While most companies trading on medical marijuana are penny stocks, living in a legal limbo that leaves their future more uncertain than most companies. GW Pharmaceuticals, though, is developing treatments with cannabis that are completely legal.
The company’s lead therapy, nabiximols (trade name Sativex), is a cannaboid oromucosal mouth spray that’s being used to treat neuropathic pain, spasticity, and overactive bladder in multiple sclerosis (MS) as well as for cancer pain. It has been approved for use in Europe and is currently pending approval in the United States.
This puts GW Pharmaceuticals into a different class of marijuana play, as its considerably higher market cap should clearly indicate. The long-term legality of marijuana, either as a recreational drug or as a medical treatment, doesn’t have much bearing on GW Pharmaceutical’s success. Nor does the United States, necessarily, as the company is currently marketing the product in Europe, Asia (excluding China and Japan), Africa, and the Middle East.
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