Can New Canadian Investors Still Harvest Upside From This Crop of Weed Stocks?

New investors might not be too late to profit from Canopy Growth Corp (TSX:WEED)(NYSE:CGC) and two other Canadian cannabis stocks.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

From luxury clothing to gold miners, the TSX index has more than its fair share of growth stocks. But one Canadian growth industry has the potential to line investors pockets with more upside than possibly any other: medical and legal recreational marijuana.

While some investors may be content to buy and hold stocks for their dividends, short-term traders and those bullish on this new industry long term have been rolling up their sleeves and getting stuck into legal cannabis stocks, such as the following three popular picks. But have the good times ended or is there still a chance to jump on and make a profit?

Canopy Growth (TSX:WEED)(NYSE:CGC)

Down 2.96% in the last five days, Canopy Growth had, until recently, been galloping back to its mid-September peak. A stock that’s almost as hard to predict as the TSX index itself — though in seemingly contrary ways — Canopy Growth has the potential to reward any investor with enough nerve and sense of timing who dares to buy in.

While Canopy Growth is looking at a 109.5% expected annual growth in earnings, there are a few reasons why one might want to hold off: A negative one-year past earnings record underperformed Canadian pharma for the same period, and though its P/E and PEG ratios are skewed by that lack of growth, a P/B ratio of 8.7 times book indicates overvaluation. Carrying a level of debt that’s almost up at half its net worth at 49.4%, the risk averse may want to add it to a watch list rather than jump in feet first.

VIVO Cannabis (TSX:VIVO)

Having shed 2.83% in the last five days, VIVO Cannabis had likewise been on the up. Its beta of 2.24 relative to the Canadian pharma industry shows that there’s enough volatility here to keep a sharp-eyed momentum investor interested, and with a 101.7% expected annual growth in earnings on the way, anyone looking for a pot stock to buy and hold might be onto a winner.

However, there is something of a dichotomy here: while a value investor might be pleased to hear that VIVO Cannabis has a low P/B of 1.3 times book and discount of 47% against its future cash flow value, this might not interest short-term traders looking to make a fast buck. For those that do want to buy and hold, though, a low debt level of 12.6% makes for a low-risk investment.

CannTrust Holdings (TSX:TRST)

Down 0.69% in the last five days (down from an impressive climb of 7.48%) CannTrust Holdings has been rising steadily since December. Indeed, the recovery in marijuana stocks after the holidays has been palpable. Now, however, they all seem to be dipping in unison.

With a 43.2% expected annual growth in earnings, CannTrust Holdings isn’t looking at as steep a rise as its peers above, but it should still interest the growth investor. It’s a mixed bag, though, with a clean balance sheet indicated by a low debt level of 5.5% of net worth let down by high market fundamentals.

The bottom line

Trading at around 27 times its projected cash flow value, Canopy Growth isn’t what you’d call a cheap stock at the moment. Nor is CannTrust Holdings, with its P/E of 51.9 times earnings and P/B of 5.5 times book. Still, there is the potential for upside in all the stocks listed here, and as such they offer intriguing capital gains plays in the TSX index’s marijuana sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

More on Stocks for Beginners

Stocks for Beginners

Investing Strategies for Canadians in an Uncertain Economy

These are uncertain times, as the economy grapples with high inflation. Here are four investing strategies for the current market.

Read more »

Stocks for Beginners

How to Start Investing in a TFSA in a Down Market

Are you interested in starting a TFSA during a down market? Here are a few tips to keep in mind.

Read more »

Make a choice, path to success, sign
Stocks for Beginners

TFSA Investors: Must-Have Stock Strategies for Your Retirement

While reliable income stocks could help TFSA investors reduce their risk profile, high-growth stocks have the potential to significantly multiply…

Read more »

Happy diverse people together in the park
Stocks for Beginners

3 Stocks New Investors Should Buy Today

The stock market has been hard to gauge for the past year or so. Which stocks should new investors be…

Read more »

Various Canadian dollars in gray pants pocket
Stocks for Beginners

How to Be a Millionaire With $50 a Day 

Here is a strategy to be a millionaire with just $50 a day.

Read more »

calculate and analyze stock
Stocks for Beginners

Top TSX Stocks for Beginners in July 2022

Buying these top TSX stocks in July 2022 could help stock market beginners receive handsome returns on their investments in…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Canadian Bank Stocks After the Recent Correction?

Dividends and fairly valued Canadian bank stocks look attractive. But the macro picture could be a spoiler!

Read more »

consider the options
Stocks for Beginners

TSX Investors: These International Stocks Look Insanely Cheap

Diversification can help grow and protect your TSX stock investment portfolio. Here are two international stocks that are selling at…

Read more »