Alternative energy and cannabis are the next big things in the stock market


One of the secrets to investing is to find areas that are likely to grow consistently year on year.

A lot of attention in the last few years has been on the technology sector, which has certainly delivered results. However, two areas that have not gained as much attention are alternative energy and cannabis, which I believe will grow substantially in the years to come.

Earlier this year, cannabis stocks took a big step forward after the Therapeutic Goods Administration (TGA) finally approved the sale of low dose cannabidiol or CBD without a prescription.

cbd oil cannabis stocks alternative energy shares

Currently, Americans spend around $13 billion on legal medical cannabis and forecasts indicate that by 2025 this figure will rise around 131% to $30 billion. So, how will this benefit Australia if the US produces its own cannabis products?

Like the US, it is also forecasted that Asia will experience significant growth and the Australian climate is perfect for producing cannabis. Given our proximity to Asia, our stable currency, good track record with our Asian trading partners, a willing and stable workforce together with a good regulatory environment means Australia is well placed to meet the increasing demand for cannabis products. Given this, the question investors should be asking is whether it is time to be investing in cannabis stocks.

There are three stocks (in no particular order) that I believe are worth looking at. The first is Incannex Healthcare (IHL) who develops medicinal cannabinoid pharmaceutical products and is well placed to benefit from increased demand, as it is capable of expansion and exporting globally.

Next up is ECofibre (EOF), and while it is not into medical cannabis, it is in this developing sector and has grand plans of being the global leader in hemp technologies. Cann Group (CAN) is also worth looking at, as it is the first Australian company to be licensed to cultivate medicinal cannabis. Its vision is to be a leading supplier of cannabis and medicinal cannabis products.

The best and worst performing sectors this week

The best performing sectors include Financials up more than 2% followed by Information Technology up more than 1 percent and Utilities, which is up just under 1%. The worst performing sectors include Energy down more than 2% followed by Communication Services down more than 1% and Consumer Staples down just under 1%.

The best performers in the S&P/ASX top 100 stocks include IGO, Worley, Lynas and Magellan, which are all up more than 7% followed by a2 Milk up more than 6%. The worst performing stocks include the Star Entertainment Group down more than 6% followed by Alumina, Tabcorp Holdings and Mineral Resources, which are all down more than 5%.

What's next for the Australian share market

While the Australian stock market has been trading up this week, it is still exhibiting indecision given that while it is up just under 1%, as of writing, two of the four days this week have closed almost at the same price they opened.

Last week I indicated that the reason why our market was not really moving was because the Materials and Financial sectors were trending in opposite directions for most of the week. The same can be said this week, although the tables are turning, as Financials is up more than 2% while Materials is trading just in the red.

For the market to rise or fall in a sustained move, the Financials and Materials sectors both need to travel in the same direction. Given the sustained indecision, and the fact our market has been up for three weeks, I suspect we may now see a down week either next week or the week after, which will indicate whether the last two months of this year will be bullish or bearish.

While there are some great purchasing opportunities in the market right now, it will pay to be a little more cautious than usual.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.