Today’s heated rhetoric about “fake news” reminds me of an innovative ad man named Herb Schmertz. During the 1980s, Schmertz pioneered the idea of exploiting the newspaper op-ed page for marketing purposes. I consider him to be the Father of Fake News.

Most people mistakenly think that “op-ed” stands for opinion-editorial. Actually, it refers to editorials that run on the right-hand page opposite a newspaper’s institutional editorial.

Schmertz would purchase advertising space in the quality mainstream press to run op-eds sponsored by his employer Mobil Corp., now Exxon Mobil (NYSE: XOM). This was during an era when oil companies were under public pressure for making “obscene profits.” Schmertz would argue the oil industry’s side, of course. His most visible efforts were in the intelligentsia’s Holy of Holies — The New York Times op-ed page.

Through advertorials that seemed like editorials, Schmertz would influence the public debate. Few readers noticed the fine print at the bottom of his op-eds that revealed Mobil’s paid sponsorship. By sheer dint of cash, PR flack Schmertz became an influential pundit.

My point (and I do have one) is that with Investing Daily, what you see is what you get: no hidden agendas and no fake news. Just the straight dope.

And speaking of dope, let’s get to the first Mailbag question, concerning pot stocks:

A new leaf…

As I’ve noted in previous issues, my readers are particularly enamored of pot stocks. Here’s the latest reader inquiry:

“I’ve been reading your newsletter for a few months now. I’m curious about the marijuana stocks you mention, but I’m still trying to make a decision. This is a new direction for me. Any advice?” — Tulasi A.

Tulasi, you must remain wary of the micro-cap marijuana stocks that are exploiting investor fascination with this investment theme. Many of these companies are poorly managed penny stocks that will soon implode. That’s why my favorite marijuana stock also happens to be the largest of its kind: GW Pharmaceuticals (NSDQ: GWPH).

Based in the United Kingdom, this pharmaceutical company discovers, develops, and markets cannabinoid prescription medicines. The company’s primary product is Sativex, an oromucosal spray for the treatment of multiple sclerosis, cancer pain and neuropathic pain.

With a market cap of $2.9 billion, GW Pharmaceuticals is one of the few “weed companies” that’s a stable biotech company in its own right. I expect GWPH to post year-over-year earnings growth next year of at least 13.3%.

Hipper-than-thou…

In response to my August 3 issue, Why You Should “Unfriend” Facebook Stock:

“You didn’t talk enough about Instagram. If people are leaving Facebook it’s because they are using Instagram. Instagram is stealing all of Snapchat’s good ideas. Snapchat has become the free testing ground to see what people like and then Instagram will implement it. The reason Snapchat went public is because it knew it was getting ready to die and they had to cash out before it was too late. I agree Facebook is overvalued but it has a ton of room to grow when it comes to Instagram alone.

The Facebook platform is taking over online group forums. Once it organizes itself better it is primed to take on Google and YouTube. Grandparents are all over Facebook and if they can figure out and embrace this social media platform, it means Facebook has long-term staying power.” — Matthew E.

It’s true, buying Instagram was a shrewd move for Facebook (NSDQ: FB). In 2012, Facebook purchased the photo filter app for $1 billion. Facebook rightfully worried about growing stale and only appealing to an aging demographic, so it scooped up the hip photo-sharing app beloved by Generation X and Millennials. I stick to my original thesis, though: Facebook is grossly overvalued and vulnerable to technological disruption.

The Pentagon’s pile of cash…

“Been a member for a year now and value your efforts and honest advice! Can you opine on the huge drop in ATRO? The stock has been dropping consistently then tanked when the firm reported 2QTR. Have your projections changed?” — Don A.

Don, we still believe in Personal Finance Growth Portfolio holding Astronics (NSDQ: ATRO) and we haven’t changed our view. Here’s what you need to keep in mind: the aerospace/defense business can be volatile and subject to the vagaries of government budgeting. Contracts are won but sometimes delayed due to bureaucratic reasons.

But the fact remains, the Pentagon is a client with deep pockets and those pockets are getting deeper under the pro-defense Trump administration. We feel that Astronics was unfairly punished because of temporary speed bumps in sales; those sales should eventually come through. As a small-cap, ATRO by the nature of its valuation tends to be more volatile than its mega-cap brethren.

Regardless of share price gyrations, the company makes sophisticated electronics that are vital to U.S. armed forces. Electronics are valued-added products for which companies such as Astronics can charge a premium, which is a huge advantage as other aviation suppliers combat price pressure due to commodification. We think ATRO sales and earnings will rebound.

Indeed, the average analyst expectation is that ATRO’s year-over-year earnings growth will come in at 51.5% next quarter, 23.7% next year, and 12.5% over the next five years on an annualized basis. You should consider the recent drop as a buying opportunity.

Dark times return to the energy patch…

As energy prices slump, several readers are expressing concern over the viability of oil and gas stocks. Here’s one such letter:

“After seeming to bounce back in the latter part of 2016, energy prices are in the doldrums again. Should I be concerned about energy sector indebtedness?” — Gary C.

Erstwhile Senate Minority Leader Everett Dirksen (R-IL) once famously said: “A billion here, a billion there, sooner or later it adds up to real money.” He was referring to the nation’s finances, but he could have been referring to many beleaguered companies right now in the energy patch.

How colossal is the energy sector’s collective debt? According to recent analyst estimates, the amount of outstanding loans and lending commitments to the energy industry that large U.S. banks currently have on their books totals $123 billion.

With energy prices sputtering this year, it’s no surprise that the number of expected bankruptcies in the energy sector this year is growing. In this unpredictable climate, your smartest strategy is to look for energy stocks with the lowest ratios of long-term debt-to-equity. They’re less vulnerable to wild oil price swings and they’ll grow the fastest when energy prices inevitably bounce back.

As a rule, I prefer S&P 500 companies in the energy sector with particularly low long-term debt-to-equity.

The total debt-to-equity ratio is a gauge of a company’s financial leverage. A high debt-to-equity ratio reflects greater financial risk because of potentially higher interest costs associated with the debt and the future need to either pay back the debt or roll the debt forward with new financing.

Got a question or comment? Send me an email: mailbag@investingdaily.com. I reserve the right to edit letters for the sake of clarity and concision (and civility). — John Persinos

Jim Fink’s “crazy” challenge…

Our in-house income guru Jim Fink throws down this gauntlet to investors:

“If I don’t deliver 24 triple-digit winners in the next year… I’ll cut you a check for $1,950.”

His promise isn’t as crazy as it seems. In fact, as chief investment strategist of Velocity Trader, Jim made this challenge to his followers when he first launched his publication. He has already followed through for them.

In less than a year, Jim racked up twenty-four triple-digit winners, along with more than thirty double-digit winners thrown in.

Jim has put together a proprietary trading system that quickly and predictably multiplies the gains of ordinary stocks. By following just a few elegantly simple steps, his investment method allows you to take regular stock movements of 8%, 17%, or 34% and amplify them to generate profits of 100%, 300%, or even 800%.

Take the Jim Fink challenge! Watch his brief presentation.