Rotation in stock market leadership is normal and has occurred since the first trade on the NYSE or the Nasdaq. Apple, Amazon, and Microsoft are the big dogs now, but Digital Equipment, IBM, General Electric and RCA were leaders decades ago. If we look back to the 1970s, revenue changed as products evolved from sewing machines and radios to computers and cell phones, and the leaders of today only hold that crown for a short period when we look at history.
Consumer demand shifts and leadership changes, a quick look back at the top 10 revenue generators from 1970 shows the tail end of the auto industry before valuations shifted to computer chips and the early stages of wireless communications and connectivity for the global consumer.
Flash forward a decade forward shows an entirely new set of leaders, and on, and on, the story goes. We land in this decade (2020) and see Uber, Tesla, Nvidia, and Facebook having their time, and these behemoths will likely eclipse the Four Horseman of today who have the largest valuation – Apple, Amazon, Google, and Berkshire Hathaway. A look at revenue in 1970 below shows a shift every decade.
This change occurs in the mega-cap stocks that lead the era, and also happens in each growth subsector, and the stocks of the future include AI, driverless transportation, digital currency, cannabis, and blockchain are positioning themselves for the next decade.
This is happening in the Cannabis sector now after a large selloff shows the top 5 stocks are down more than 50% in 2020, and only GSW Pharma has avoided institutional exodus. It’s logical that rotation occurs. A glance below shows the YTD performance of the “so-called” pedigree names in the Cannabis Sector, and it signals changes are afoot. It is impossible that leadership can decline near 80% without totally shifting the business model, and that means rotation and opportunity. The Tiprank chart below shows vulnerable stocks like Aurora, Hexo and Tilray.
In the Q1 2020, Cannabis Sector valuations are at historic lows, and this is a long way from 2016, a time where these stocks exploded after Republicans were voted into power. 4 years later the sector cannot just go and acquire other company’s revenue with shares, that strategy worked for about 2 quarters, now anyone who wants to lead must really demonstrate that they know how to run their business, and they need to efficiently run their business now as the industry begins to cash flow.
We, as analysts, observers and investors need to find what business lines are working and use our eyes. We see CBD selling online and we see new entrants in the market who are operating businesses that produce profit and predictable margin. This basic blocking and tackling is an important observation for this growing cannabis sector. Industry experts predict the hockey stick jump in revenue growth happens in the first half of the decade, so by 2025 Cannabis pedigree and leadership should be in place, and we don’t know who these Four Horseman will be, and we don’t know if the revenue will be medical or recreational, we simply don’t know.
We need to follow the money, but we need to follow the margin as Cannabis leaders of old are about to change. This is a young growth sector in transition about to experience doubling of revenue, federal legalization and cannabis products sold in every pharmacy to replace a synthetic medicine or as a recreational product infused in a beverage. Cannabis leaders are about to change – just as they always do.