Are you looking for some growth stocks trading at bargain prices? One industry you should consider right now is cannabis. It's still in its early growth stages, and there are plenty of opportunities down the road as more states legalize marijuana. Although there's still a federal ban in place, support for legalization has never been higher, and it's only a matter of time before serious reform happens.
However, the sector has been hit especially hard over the past year. While the S&P 500 has declined 12% in 12 months, the Horizons Marijuana Life Sciences ETF has plummeted 66%. Lack of progress on legalization is likely a key reason investors have lost interest in the industry. But that has made some pot stocks downright steals. Here's where to look for deals in the industry, including some particularly attractive buying opportunities right now.
Multi-state marijuana operators should be the priority
Investing in some of the top multi-state marijuana companies in the U.S. can give investors a great opportunity to buy stocks that are full of potential. Due to the federal ban on marijuana, these stocks can't list on major exchanges like the Nasdaq or NYSE. That means that they're reaching a smaller pool of investors. Legalization or legislation allowing them to list on those exchanges could instantly lead to a rally in their share prices.
Examples of top MSOs include Curaleaf Holdings (CURLF -2.56%) and Trulieve Cannabis (TCNNF -5.95%). These companies have been growing at impressive rates over the past few years, more than tripling their revenue:
Data by YCharts.
Both businesses have generated more than $1 billion in sales over the trailing 12 months, and they normally report operating profits as well. Curaleaf is in 22 states, while Trulieve's strategy is a bit more focused, with its business being active in 11 states (including a heavy presence in Florida). Unlike companies in other industries that are slashing their operations, Curaleaf and Trulieve have been expanding and opening new locations recently.
As the growth in the industry continues, investors can expect these leading companies to continue expanding their positions and for their sales to rise. And not only are these businesses growing, their valuations have become incredibly cheap.
Valuations have never been lower
With sales rising and stock prices falling, it's of little surprise that, with respect to revenue, these stocks are trading at bargain-basement prices:
Data by YCharts.
Both of these stocks were trading at much higher multiples just a few years ago. And with more growth still on the horizon -- New Jersey recently began selling recreational cannabis earlier this year, and New York is expected to follow suit either later this year or in 2023 -- investors could be making a mistake in undervaluing their potential.
While shares of pot stocks may continue falling this year, this is a volatile sector, and all it needs is a catalyst to change its current trajectory. For example, Senate Majority Leader Chuck Schumer has been pushing for reform, and is working on a comprehensive bill to legalize marijuana. If that picks up steam this year or next, these overlooked marijuana stocks could quickly become some scorching-hot buys given their low valuations.
A great opportunity for patient investors
Cannabis stocks like Curaleaf and Trulieve have some promising potential over the long term. There will be volatility, however. If you are prepared to buy and hold and hang on tight, this can be a much more exciting opportunity to consider right now that, I believe, has more upside than crypto and many tech stocks. Trulieve and Curaleaf are just a couple of examples of some top pot stocks in the industry, but there are many other quality MSOs you can consider as well.
