I can’t believe I’m saying this again.
Cannabis stocks are trading in “value” territory.
When they were at this level in early 2020, the industry proceeded to rally over 250% in less than a year.
And after a 20% decline in 2021, the sector’s valuation is cheaper now than it was then.
Cannabis stocks have become too cheap to ignore.
Cannabis Stocks Have Seen a Slow Death
Now, you can’t always buy stocks on valuation alone.
This can lead to investing in value traps or stocks at low valuations with underlying problems.
But cannabis stocks are far from value traps.
The weakness in 2021 wasn’t caused by deteriorating fundamentals.
Over the past 12 months, the top 10 cannabis companies in North America grew rapidly.
Their sales were up an average of 80% from the previous year.
Plus, the majority of them saw improvements to their balance sheet.
The financial strength should have helped cannabis stock prices.
We saw the same disconnect between fundamentals and stock prices happen back in 2020.
Extreme greed and fear have always driven price moves in the industry.
And after a 130% move in two months to start the year, cannabis stocks have seen a slow death as many traders got stuck in the trade.
(Source: Bloomberg.)
The boom/bust nature of cannabis stocks isn’t a bad thing.
It gives traders opportunities to make money on both sides of the trade.
Short sellers that bet against cannabis stocks could have made good money over the last 10 months.
The Bust Is Over
I’m going on record and saying the bust is over.
I expect the smart money to be buying cannabis stocks in 2022 as they search for growth stocks at cheap prices.
To get exposure to the sector, you can buy a couple of ETFs.
Buying either at this level should set you up for at least 50% gains by 2023.
But if you want to target even bigger gains from the upcoming cannabis rally, you’re better off holding individual stocks.
Check out Strategic Fortunes to see our favorite cannabis pick that’s already sitting at a triple-digit gain.
Regards,
Research Analyst, Strategic Fortunes
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