Great News for Marijuana Stocks: Optimism Returns to the Market

Pot Stocks Expected to Surge During Market Recovery

One thing investors have to keep in mind when considering the future of marijuana stocks is that these stocks are still in an emergent industry. While pot stocks are unique in a variety of ways, they still more or less follow the typical emergent-industry stock patterns.

And that means, dear reader, that we can expect to see big things from marijuana stocks in the near future.

Stock market optimism is at a historical high, hitting levels we haven’t seen in nearly two decades. (Source: “Wall Street Is the Most Bullish on Stocks in Almost Two Decades,” Bloomberg, August 14, 2021.)

Roughly 56% of all recommendations by Wall Street analysts on S&P 500 companies are listed as buys, which is the most bullish we’ve seen the market since 2002. (Remember those days, before the Great Recession, the global COVID-19 pandemic, and political deadlock?).

The reason for this optimism is the unexpectedly high corporate earnings in recent quarters. These highs are even more surprising, considering that the pandemic—while subsiding—has given the economy another nasty surprise with the Delta variant and all the issues that the new strain has caused.

Nevertheless, the overall market has very positive projections as we move toward 2022.

And that’s fantastic news for pot stocks.

Being part of an emergent industry, marijuana stocks are considered high-risk/high-reward investments. They’re known for reaching dizzying highs within short periods, but they’re also prone to large downward swings.

This dynamic is far from a bug for pot stocks; it’s a feature. This is what investors want when they add marijuana stocks to their portfolios: the ability to make a lot of money fast, even if that does come with risk.

During market downturns and economic uncertainty, high-risk/high-reward stocks are the first to suffer. After all, when investors are concerned that the stock market is on the brink of a major collapse, the last securities they want to hold are those that are particularly vulnerable to market swings.

Conversely, when optimism is high, pot stocks are more prone to rapid gains. Emergent-industry stocks are the first ones sought out when market momentum is building. Investors rightly believe that they have the highest ceilings—or, at least, the potential to see the fastest gains within a short period.

Now that we’re seeing optimism return to the stock market, investors ought to be very excited about what marijuana stocks can do in the coming months and years.

There is a caveat, however. I was optimistic before. Only a few weeks ago, in fact, with COVID-19 beginning to ebb and cash hitting people’s pockets by way of government stimulus checks, it appeared as if we were finally on the other side of the nonsense we’ve battled for the last year and a half.

But it hasn’t been all sunshine and rainbows. As mentioned earlier, COVID-19 has begun to make a comeback by way of the Delta variant, which—much to our irritation—appears to have a higher breakout possibility, even among vaccinated people.

Still, despite the initial back-and-forth in just how optimistic we can afford to be about the near future, it’s now looking like that—as least as far as the stock market is concerned—times are good.

With that, pot stocks once again present themselves as prime investment opportunities. To investors who are keen on potentially doubling their money within a year or so, marijuana stocks are enticing.

What makes pot stocks especially exciting is that they’re going to benefit from the emergent-industry boost alongside the pot industry showing significant signs of growth, in addition to the fact that marijuana stocks are underpriced right now.

While some pot stocks have begun to recover from the low points of 2020 and the panic that sent share prices tanking, many have not yet regained their heights.

In a supercharged market that’s likely to emerge on the other side of the pandemic, those highs are likely to be regained—and then some.

To that end, investing in marijuana stocks now while they remain on the downswing could be another huge opportunity to see large gains in a short amount of time.

Of course, you’d have to take a riskier bet on weaker-performing pot stocks. Many of the top marijuana stocks have performed rather well in 2021.

So, investors are left with a choice: go in on the riskier pot stocks that have a better chance of seeing higher and faster gains, or invest in the old favorites that have delivered respectable gains for years and shown resilience to market shifts.

In my mind, it’s almost always better to err on the side of long-term investments. They’re more reliable and have shown an ability to deliver consistent gains year-over-year. Yes, investors may forgo some insane early gains, but they’ll usually make those up in the long run and not have to worry about timing their selling and buying exactly right.

In other words, long-term investments offer more leeway and flexibility. Unless you’re a day trader, I’d suggest going in on the marijuana stocks with weaker near-term projections but stronger upside down the line.

Analyst Take

The marijuana market is looking once again to be on the brink of a major recovery.

While we’ve already seen fits and starts of pot stocks regaining their former highs, there appears to be a wave of excitement building as the world gets back to normal. And that wave is likely to lift marijuana stocks highest of all in the short term.