Should the smart investor be looking at cannabis stocks that are undervalued relative to today’s prices, or at the stocks that will dominate the market 5 years from now? The answer is simple. And while “staying future-focused” is a simple concept, many investors struggle with shiny object syndrome. When investing in any market, always look for companies that offer enough major competitive advantages to keep them ahead of curve, not just for an undervalued company that is expected to run. When hunting for value in the cannabis industry the rules are no different – understand and look towards the global leaders.
Currently, many analysts are pointing towards the obvious choices. Canopy Growth (TSX: WEED) (NYSE: CGC) and Aurora Cannabis (TSX: ACB) (NYSE: ACB) are the global leaders ahead of the pack. The high-end analyst price target on WEED is $90 by Jason Zandberg at PI Financial. With WEED currently trading at $61.09, this represents a possible upside of 47.32%. In April 2019, Zandberg showed his bullishness by raising his target on WEED from $70 to $90 on the heels of the Canopy and Acreage Holdings (CSE: ACRG.U) (OTCQX: ACRGF) acquisition announcement.
ACB currently has a high-end price target of $13.50 which was reiterated last month by Matt Bottomley of Canaccord Genuity. Bottomley raised his price target on ACB from $13 to $13.50 while maintaining a speculative buy rating on the stock. Shares of ACB are currently trading at $11.57 per share and the $13.50 price target represents an implied upside of 16.68%.
However, on a 12-month basis, analysts believe that The Green Organic Dutchman (TSX: TGOD) (OTCQX: TGODF) and CannTrust Holdings have more built-in value as they are expected to immerge as global leaders. Let’s take a closer look at these 2 stocks.
A Vision of Global Cannabis
The Green Organic Dutchman saw its stock run extremely hard out of the gates following their IPO in May 2018 and has since lost some momentum. The initial steam only carried it so far, and investors were quick to scare, as the initial move was overly volatile. However, TGOD is positioned to be one of the most dominant global players in the organic segment and the stock has since consolidated. They seemed to follow a golden rule playbook when entering any new industry:
- They hired a management team with over 125 years of consumer goods experience.
- While operating in a segment that is highly specialized (organic flower) however can offer very attractive margins and market capitalization if done correctly.
- Lastly, their initial investment was more than enough to support the weight of a scaling behemoth.
Overall the company has proactively invested into strong global infrastructure, announcing the construction of a beverage focused division in June 2018, and acquiring HemPoland, which has CBD distribution across 13 countries. Given the recent acquirement, sales have been slow in Q1 2019 and shipping is only set to start in the remainder of the year, which leaves immense opportunity and potential upside for investors.
Analyst price targets for TGOD come in as high as $6.50, while the stock is currently trading at $3.93. This gap between prices represents 65.39% in implied upside.
CannTrust is easily up there with the top global players, from patients to medical developments. Their nanotechnology developments are especially ground-breaking and can be licensed globally to create medical, recreational, beauty, and wellness products in the cannabis space. The company is also committed to innovation in cannabis partnerships with the University of Australia, and McMaster University in Ontario. They are also well positioned to benefit from the expansion of medical cannabis treatments in the European regions as they have many partnerships across countries in Eastern Europe. Yet despite the recent operational growth, the company has had negative EBITDA in Q4, which has been steering the market towards the more profitable players. If one were to bet on CannTrust succeeding even a fraction globally, then their valuations look very attractive at these levels.
Analysts currently have a $14 price target on TRST. With the stock currently trading at $8.38, this represents a potential upside of 67.06% from current levels.
Staying ahead of the curve and spotting these immerging global leaders is easy when you know what to look for.
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WEED DD Links
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