In this week’s Marijuana Market Update, I’ll share the highest-rated stock in my Cannabis Power Ratings system.
I’ll also revisit comments on last week’s video on cannabis-infused beverages. We love reading all of your feedback and insights!
Cannabis Power Ratings
My Cannabis Power Ratings system is derived from our Chief Investment Strategist Adam O’Dell’s proprietary Stock Power Ratings system. I tweaked it, rating cannabis stocks on two metrics: momentum and value.
Momentum is important because we like to find stocks with an uptrend. It ties into our “buy high, sell higher” philosophy.
I chose value because, of the two fundamental metrics we use, value is a better analysis for cannabis stocks right now.
Growth doesn’t work as well because most cannabis companies struggle for broad revenue growth. I also discounted quality because returns on assets, equity and investment are low in the cannabis market.
Plus, the system rates cannabis stocks against themselves. It’s not fair to compare a company like Apple Inc. (Nasdaq: AAPL) with GrowGeneration Corp. (Nasdaq: GRWG).
I’m going to share with you my highest-rated cannabis stock this week.
It’s one you may be familiar with if you remember my Cannabis Watchlist.
Schweitzer-Mauduit International Inc. (SWM) Analysis
Cannabis stocks are down, but I’m still bullish for certain companies.
Schweitzer-Mauduit International Inc. (NYSE: SWM) is a Georgia-based company that made its name by manufacturing and distributing rolling papers for the tobacco industry.
It expanded into offering papers for cannabis, including low-ignition papers that put themselves out when not actively burning for a certain period.
The market size of rolling papers is bigger than expected.
Research from Future Market Insights Global projected the global rolling papers market value will be $679 million in 2022.
That’s expected to blossom to $1.1 billion in 10 years — a compound annual growth rate of 5.1%.
The rolling papers market is robust and ready to grow.
And SWM is in a position to capitalize as one of the world’s leading producers.
Its revenue growth trajectory is strong for the coming years.
The company’s annual revenue dipped from 2018 to 2019, but rebounded in 2020.
By 2021, it registered $1.4 billion in total annual revenue — a 34% increase from the previous year.
This year, SWM is expected to record $1.62 billion in total annual revenue. By 2023, that figure should reach $1.64 billion — a 52% jump from 2020.
That’s strong growth potential in a limited market.
Let’s see why SWM is the highest-rated stock in my Cannabis Power Ratings system.
Cannabis Power Rating: SWM
The company rates a 99 overall, with a 93 on momentum.
It also scores a 76 on value. It’s trading with a price-to-earnings ratio of around 13, compared to the industry average of 20. SWM’s price-to-sales ratio is five times lower than its peers’ average, while its price-to-book value ratio is more than half its peers’.
That’s a significant value compared to other stocks in the same industry.
SWM’s Momentum
Now, about its momentum…
SWM hit its 52-week low of $24.76 per share in April. Since touching that low, the stock has climbed around 15% to where it is this week.
It crossed above its 50-day simple moving average — considered a potentially bullish sign for the stock.
I was bullish on SWM when I put it on my Cannabis Watchlist back in September 2020 and I remain bullish on it now.
At one point, SWM was up 50% from when I recommended it! I think it will reach that same mark in the future.
Now, I want to revisit our update from last week.
Viewer Comments on NBEV
Last week’s update on cannabis-infused beverages drew comments from viewers about different potential investment ideas within the industry.
While I discussed NewAge Inc. (Nasdaq: NBEV), JustChillingOutside said:
Tinley’s Beverages Company has the largest manufacturing facility in California for cannabis-infused beverages.
For reference, Tinley (OTC: TNYBF) collaborated with Vertosa and Calexo on a new line of cannabis-infused sparkling waters that contain about five milligrams of THC per 12-ounce can.
Tim added:
Kona Gold is the best play for CBD in drinks, and they’re already in Walmart with sparkling lemonade drinks.
Florida-based Kona Gold Beverage Inc. (OTC: KGKG) posted its highest month for revenue in May. The company reported gross revenue of $480,000, with most of that coming from the sale of Gold Leaf products.
Gold Leaf distributes high-alkaline waters, kids’ drinks, energy drinks, and hemp/CBD products in Florida and South Carolina.
The Takeaway: Both of these companies are worth exploring if you are interested in investing in cannabis-infused beverages.
For the record, NBEV has traded a bit flat since I discussed the stock last week.
One more thing: Any questions? You can get Money & Markets swag by submitting a question for me, Adam O’Dell or Charles Sizemore that we’ll use in any of our videos. Just send us your questions and feedback.
Where to Find Us
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The Bull & The Bear — Our weekly podcast where I show you the trends and analysis that moves the market.
All these series are on our YouTube channel.
Also, you can follow me on Twitter (@InvestWithMattC), where I’ll give you even more insights, not just in the cannabis market. You can also check out my new Stock Power Daily series on the Money & Markets website. I give you a new stock every day that I expect to outperform the market based on our proprietary Stock Power Ratings system.
Safe trading,
Matt Clark
Research Analyst, Money & Markets