Please ensure Javascript is enabled for purposes of website accessibility

3 Pot Stocks Under $5 That Could Double Your Money

By David Jagielski - Jun 19, 2020 at 8:07AM

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

These pot stocks can give you some good bang for your buck.

The one good thing about the crash of the marijuana sector over the past year is that it's created some better buys. Cannabis investors can now scoop up potential deals that could lead to some solid gains down the road. Here are three cheap stocks trading below $5 a share that could double in value:

1. Neptune Wellness

Neptune Wellness Solutions (NEPT 49.63%) is a bit safer than your typical cannabis company. Focused on purification and extraction services, Neptune helps pot producers create edible cannabis products. And that business has been strong of late.

The company released its year-end results for fiscal 2020 on June 10, showing revenue growth of 21% from the previous year. While sales in its Nutraceuticals segment, which includes omega-3 and hemp-derived
ingredients, fell by 12.9%, it became a more diversified company in the process, with its cannabis sales skyrocketing.

Cookies and brownies that are cannabis edibles.

Image source: Getty Images.

During the year, the health and wellness company generated 8.1 million Canadian dollars from cannabis, compared with just CA$12,000 a year ago. The cannabis segment now accounts for 27% of Neptune's total revenue and is a much more important part of its business than it was a year ago, when it made up less than 1% of sales. 

Neptune incurred a loss of CA$60.9 million in fiscal 2020, but that was largely due to a noncash impairment loss of goodwill that totaled CA$85.5 million. Given the company's potential growth, profitability may now be in sight. On May 19, Neptune announced that a new partnership under which it will process hemp will generate at least CA$16.5 million during the next six months.

The Quebec-based business has been adapting to the coronavirus pandemic by launching a new line of hand sanitizers. The company's also been marketing its Neptune Air thermometer, which is infrared, non-contact, and designed to reduce the risk of cross-contamination and the spread of disease. The impact of the pandemic on Neptune's financials is still uncertain. Investors will likely get a better idea of that when Neptune releases its second-quarter results, which will include the full month of June.

The stock currently trades at about $2.60 per share, and with stronger results, there's a lot of room for it to rise in value. In one year, shares of Neptune have plummeted by more than 40%, while the Horizons Marijuana Life Sciences ETF (HMLSF 0.00%) is down 60%.

2. Valens

Valens GroWorks (VLNCF -10.08%) is trading close to the $2 mark, and it's another stock with impressive potential. The company released its first-quarter 2020 results on April 14. Valens started out the new fiscal year strong, recording a net income of CA$2.5 million on sales of CA$32 million. Posting a profit is a rarity in the industry, and that's what makes Valens' stock stand out. 

With operating expenses representing 36% of sales and a gross margin of 57% (even after inventory writedowns), there's a lot of room for the British Columbia-based company to continue adding to its bottom line if it can keep on controlling its costs this well.

The caveat is that, as with many other businesses, it's unclear what impact the pandemic will have on Valens' financials -- the most recent results we've seen only included data through the end of February, but it wasn't until March 11 that the World Health Organization declared the coronavirus outbreak a pandemic.

That said, with minimal cash burn of just CA$352,000 in Q1, Valens looks to be in good shape to weather the storm. As of Feb. 29, the company had CA$35.6 million in cash on hand.

3. Aphria

Aphria (APHA) is another business that's done well with respect to its bottom line. It also reported its earnings on April 14, although they were for the company's third quarter. Aphria recorded a positive adjusted EBITDA figure for the fourth quarter in a row, and it's proving to be a model of consistency for pot stocks.

Though many cannabis companies have been incurring losses as they've been growing, Aphria has managed to keep its costs under control. Its net revenue of CA$144.4 million was nearly double the CA$73.6 million that the company generated in the prior-year period. Like Valens, the company's results only included information through the end of February, so it's too early to tell how big an impact the pandemic will have on its upcoming results.

But Aphria is in a strong position, and the pandemic doesn't make it a bad long-term buy. The Ontario-based company is also continuing to improve its financial position. On May 8, Aphria entered into an agreement to repurchase CA$127.5 million worth of senior notes and eliminate CA$6.7 million worth of cash interest costs that it's been incurring annually.

Trading at about $4.50 per share, Aphria's price tag is the closest to $5 of the three. However, given its consistency and commitment to improving its financials, the stock has a lot of potential, and doubling in value is not out of the question.

Which stock is the best of the three?

Overall, Aphria is the best buy of the stocks listed here. Not only is it profitable, but it's also growing at a good rate and paying down debt, which is is a great sign of its financial strength and overall health. It's a fairly safe cannabis stock to hold, and that's why it gets the edge over the other two stocks on this list, as it offers investors a good mix of risk and growth.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Valens GroWorks. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Neptune Wellness Solutions Inc. Stock Quote
Neptune Wellness Solutions Inc.
NEPT
$2.02 (49.63%) $0.67
Aphria Stock Quote
Aphria
APHA
The Valens Company Stock Quote
The Valens Company
VLNCF
$1.07 (-10.08%) $0.12
Horizons Marijuana Life Sciences Index ETF Stock Quote
Horizons Marijuana Life Sciences Index ETF
HMLSF
$5.00 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.