Cryptocurrency infrastructure provider Coinbase made a notable debut at the stock markets earlier this week. To me, this brings investor interest in high-growth stocks in segments like cryptocurrency and cannabis into sharp focus.
Consider the UK-listed cryptocurrency miner Argo Blockchain. Its share price increase since the start of this year has been nothing short of meteoric. It has fallen from its highs in recent weeks, but the share price is still way above its levels last year.
This rally has been driven by increasing prices of Bitcoin, its own rising revenues, and expansion to climate-friendly facilities in Texas.
The challenge, though, is this. Cryptocurrencies are far from mainstream. They are one regulation away from being completely unusable or a bad investment.
Untested cannabis market
Similar fears are valid for another sector – cannabis. Even though medical marijuana is a promising sector, it is still relatively untested. The first ever cannabis stock listings were in 2014 in Canada, and they started getting listed on US exchanges only a few years after that.
It is only recently that the UK has allowed for listing of cannabis stocks, which quickly saw three companies, MGC Pharmaceuticals, Kanabo, and Cellular Goods, get listed here.
But one fear is that cannabis-based products could go the way of vapes. If new research negates their positive impact and bad press reduces consumer interest, things could go south for this market.
Yet, all three listings were well received.
Trends in high-growth stocks
With this as the backdrop, as an investor I find it tempting to consider buying these stocks. But there are three data trends to consider here.
One, Argo Blockchain’s share price is down more than 40% within two months of hitting new highs. This indicates how fast investor mood can change for speculative stocks.
Two, UK-listed cannabis stocks have also seen a fall in share price since listing. This is despite there being no visible, fundamental reason for it. This is similar to Argo’s experience, where perception rather than performance is driving investor interest.
Three, the sharp rally seen in electric vehicle (EV) and related stocks since November last year also shows that a correction can follow quickly. For instance XPeng, the Chinese EV maker got listed in the US in August last year. By the end of November, its share price was up 3.5 times. It has halved since. Even the more popular NIO has fallen quite a bit.
What I’d do now
However, that does not mean these sectors are a no go. There are different ways I could approach investing in these sectors.
I could consider stocks like MGC Pharmaceuticals, which has been around for a while and can be assessed based on its financials. Another way for me is to allocate a (very) small proportion of my portfolio to speculative growth stocks. So if they do well, it is a win for me, but if they do not, I would still not impacted much.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.