- Cannabis stocks jumped on news of Joe Biden’s win in the US presidential election.
- Morningstar’s Dave Sekera shared with Business Insider two stocks that are still undervalued, and detailed why the industry has strong growth prospects.
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The US cannabis industry is growing rapidly as more states decriminalize or legalize the substance.
Four states — Arizona, Montana, New Jersey, and South Dakota — voted to legalize recreational marijuana on election day, bringing the total to 15 states plus Washington, DC where cannabis use is allowed by law.
Further, President-elect Joe Biden and Vice President-elect Kamala Harris have said they are in favor of decriminalizing marijuana at a federal level.
Cannabis stocks soared on news of their victory earlier this month. But according to Dave Sekera, the chief US market strategist at Morningstar, the rally pulled a number of them out of undervalued territory, at least by the firm’s standards.
Looking at metrics like cash flow and debt, Morningstar uses a five-star valuation system to assess how undervalued or overvalued a stock is. A one-star stock is most overvalued, while a five-star stock is most undervalued. Three-star stocks are considered fair-value.
After the election, many cannabis stock prices moved up to more fair-value ratings, Sekera said.
“While we may not necessarily be able to pass any legislation in the next two years while we have a divided government, we do think [Biden and Harris’ win] would be an impetus