Buy Canopy Stock, Says Analyst and Signal

Stifel just started coverage with a "buy" rating

Stifel just initiated coverage on the marijuana producer Canopy Growth Corp (NYSE:CGC) this morning, calling the stock a "buy" and starting with a $47.77 price target -- a nearly 20% premium to where the stock's current perch of $40.78. The analyst said Canopy is a leader in the relatively new pot industry, calling the Canadian cannabis concern the most investable in the space.

Since touching a six-month high of $52.74 in late April, the shares of CGC have cooled off a bit, recently dipping beneath the $39 region for the first time since January, earlier this week. While pressure at the 160-day moving average has kept a lid on any real attempts to rebound off this six-month bottom, the stock's pullback has put it in line with a historically bullish signal, which could lend itself to more upside on the charts.

Specifically, CGC just came within one standard deviation of its 52-week moving average after a lengthy period above the trendline. According to data from Senior Quantitative Analyst Rocky White, CGC has run into this signal three other times, finishing higher each time, and averaging a 31.9% positive return. From where it currently sits, a similar move would put the security at $53.79 -- right atop its April peak.

Stifel's coverage falls in line with the general sentiment surrounding the stock, with nine of the 12 analysts in coverage handing out "buy" or better recommendations prior to today. Plus, the consensus 12-month target price of $57.30 sits at a level CGC hasn't touched since its all-time high last October.

Canopy's recent dip has short interest ramping up, with a 9.5% spike to an all time high of 28 million shares sold short during the past month. These shares represent a 13.8% of the stock's available float, and would take nearly a week to buy back, at CGC's average pace of trading. This leaves plenty of potential for a short squeeze to put wind at the security's back.

Now might be the time to speculate on CGC's next move higher with options. The security's Schaeffer's Volatility Index (SVI) of 56% stands higher than only 20% of all other readings from the past year. This means that near-term option traders are pricing in relatively low volatility expectations.