As cannabis becomes more of a mainstream investment, should stocks like Canopy Growth (TSX:WEED)(NYSE:CGC) join outperforming tech in a capital gains portfolio? Let’s review the stats for the TSX index’s breakout marijuana stock and compare them against some of the tech growth stocks it most closely resembles, plus one mining stock that makes a feasible tech proxy
Canopy Growth could be the front-line marijuana stock
Up 8.7% in the last five days at the time of writing, Canopy Growth saw returns of 133.2% over the past year, illustrating an outperforming stock in a bold new industry. If it’s a clean, green stock you’re looking for, Canopy Growth’s low level of debt at 10.7% of net worth shows its balance sheet is suitable for a lower-risk investment.
Selling around six times its future cash flow value, it’s not exactly a cheap stock, though a P/B of three times book is certainly low for the kind of high-performance tickers it keeps company with. The big draw here is a significantly high 98.5% expected annual growth in earnings, however.
What kind of tech stocks should investors pair with marijuana?
Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), one of the American FAANGs, is up 2.12% in the last five days on tech bullishness that saw some of its peers enjoying a boost in share prices, making a suitable match for Canopy Growth. Alphabet’s returns of 15.2% outperformed the U.S. interactive media and services industry, which itself saw returns of 7.9% for the same period, while one-year past earnings growth of 142.7% signified a good year and beat its own five-year average of 10.4%.
Alphabet carries debt of just 2.3% of net worth, making for another lower-risk stock, though valuation could be better: see a P/E of 28.1 times earnings and P/B of 4.9 times book. In terms of upward momentum, there may be a case for market saturation here, since Alphabet is looking at only a moderate expected annual growth in earnings of 12.9%.
Meanwhile, up 12.18% in the last five days, Twitter (NYSE:TWTR) shows that it’s not just the NASDAQ that can reward with high growth in the tech sector. Past-year returns of 33.7% aren’t as high as Alphabet’s, while, over the past year, Twitter has achieved an 18% return on equity, showing that better use could have been made of input from shareholders.
Indeed, a drop of 13% in annual growth in earnings might not be the kind of future performance one would expect from a stock like Twitter, with the app having obtained a kind of peerless ubiquity that’s made it the go-to social media platform for everyone from marketers to politicians.
Investors looking for a more roots-focused tech proxy may want to go for a metals stock instead. Something like North American Palladium (TSX:PDL) should fit the bill here, with lower market ratios than your average tech stock, but a positive future performance indicated nevertheless. Low market ratios, a solid track record, and a clean balance sheet make for a solid play on palladium on the TSX index.
The bottom line
Twitter’s comparative debt level of 40% of net worth shows borderline good health in terms of its balance sheet, while Twitter insiders have only sold shares in the past three months. In other words, a “better” tech stock, such as Alphabet, could be paired with Canopy Growth for a high-yielding tag team, though momentum investors have a range of options in this space, spread across the TSX index, NYSE, and the NASDAQ.