Which Sectors Deliver Strong Growth in the Future?

One of the secrets to investing is to find areas that are likely to grow consistently year on year. In the last few years, a lot of attention 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.

Cannabis is a key growth sector in the future

Earlier this year, cannabis stocks took a big step forward after the TGA finally approved the sale of low dose cannabidiol or CBD without a prescription. Currently, Americans spend around $13 billion on legal medical cannabis and forecasts indicate that by 2025 this figure will rise around 131 per cent 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 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.

What were the best and worst performing sectors last week?

The best performing sectors included Financials up 2.01 per cent followed by Consumer Discretionary and Information Technology, which were both up 1.96 per cent. The worst performing sectors included Energy down 4.31 per cent followed by Materials down 1.39 per cent and Communication Services down 0.95 per cent.

The best performers in the S&P/ASX top 100 stocks included Altium up 7.29 per cent followed by Worley up 6.76 per cent and Magellan up 6.71 per cent. The worst performing stocks included Mineral Resources down 9.20 per cent followed by Alumina down 8.37 per cent and Woodside Petroleum down 7.59 per cent.

What's next for the Australian share market?

The Australian stock market traded up again last week achieving three consecutive weeks of gains although the market is still exhibiting indecision. Last week, three of the last four days closed near where they opened with the last three closing within 1 point of each other, even though the price ranges on these days were all over 40 points.

In my previous report, I indicated that the reason why our market has not really moved is because the Materials and Financial sectors have been trending in opposite directions. The same can be said for last week, as Financials was up 2.01 per cent while Materials was down 1.39 per cent.

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 this week or next week, 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.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.