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The Week In Cannabis: $2B+ In M&A And Financings, Hexo, Terrascend, Gage, The DEA, NY, Panama An

Below is a recap of the main news related to the cannabis industry and markets for the week of August 30, 2021.

Contents

Hexo’s $925M Acquisition Of Redecan
TerrAscend Acquires Gage Growth In $545M All-Stock Deal Policy Panama Legalizes Medical Cannabis Merrill Lynch Relaxing Its Approach To Cannabis Businesses Markets M&A Financings Earnings Reports Greenlane And KushCo Complete Merger International News Tech Top Stories Of The Week

Hexo’s $925M Acquisition Of Redecan

Hexo Corp. (TSX:HEXO) (NASDAQ:HEXO) closed its $925 million acquisition of Redecan, Canada’s largest privately-owned licensed producer.

Following the news, Cantor Fitzgerald issued a new report on Hexo.

Analyst Pablo Zuanic maintained a Neutral rating but increased the 12-month price target to CA$3.45 ($2.73) from CA$3.40 ($2.70) after tweaking pro forma estimates. 

“We will remain Neutral for now, partly on a legacy of continued dilution, but if over time, all this translates to a profitable cash generating LP (one of the largest, if not the largest), then we think the stock should start to rerate at some point,” Zuanic wrote.

According to the firm’s analysis, key potential drivers for the company going forward are:

Investors getting a better sense of the scale and prowess of the combined company on an ongoing basis. HEXO starting to report positive EBITDA in FY22. More visibility about the company’s U.S. strategy. Management clearly stating that further stock dilution is unlikely in the year ahead.

Later in the week, Hexo completed its purchase of 48North Cannabis Corp. (TSXV:NRTH) for $50 million.

TerrAscend Acquires Gage Growth In $545M All-Stock Deal

TerrAscend Corp. (CSE:TER) (OTCQX:TRSSF) and Gage Growth Corp. (CSE:GAGE) (OTCPK: GAEGF) have entered into a definitive agreement, under which TerrAscend will acquire all of the issued and outstanding subordinate voting shares of Gage for around $545 million.

Benzinga Cannabis’ content is now available in Spanish on El Planteo.

Upon completion of the transaction, the combined business will have operations in five states and Canada, including 7 cultivation and processing facilities and 23 operating dispensaries serving both medical and adult-use cannabis markets in the U.S. and Canada.

Policy

The U.S. Court of Appeals for the Ninth Circuit ruled on Monday against a petition to request that the Drug Enforcement Administration (DEA) reschedule cannabis in all of its forms under the Controlled Substances Acts (CSA).

The DEA Seeks To Increase Federal Production Limits For Psilocybin And Marijuana Research

The Drug Enforcement Administration is proposing a significant increase in federal limits for the production of psilocybin, psilocin and marijuana for research purposes.

In a clear proof of institutional interest for the therapeutic value of some Schedule 1 substances, the DEA is scheduled to publish a new document in the Federal Register on Thursday advocating for an increase in the aggregate production quotas for these naturally-produced substances.

The agency wants to allow for the production of 2 million grams of marijuana, or 500,000 more grams than its initial quota for this year. The DEA also wants to upscale cannabis extract production, doubling it to 500,000 grams.

Former Brooklyn Assemblywoman Tapped To Become Chair of N.Y. Cannabis Control Board

New York's state Senate confirmed Tremaine Wright (D), former Brooklyn assemblywoman, to lead the agencies that will regulate cannabis sales in New York.

Wright was confirmed as chair of the Cannabis Control Board and the Office of Cannabis Management. Wright was serving as the Director of the Office of Financial Inclusion and Empowerment in the NYS Department of Financial Services at the time of the appointment by New York Gov. Kathy Hochul.

Texas

Texas is loosening its policies regarding cannabis, starting with changes to state law allowing more eligible patients to request a prescription for medical cannabis.

In addition, a Texas court declared unconstitutional a law prohibiting the smoking of hemp.

Panama Legalizes Medical Cannabis

Panama's National Legislative Assembly approved a bill legalizing medical cannabis in a unanimous vote of 40 to zero.

Thus, the country will become the first in Central America to regulate the medicinal use of cannabis. However, the new regulations must be approved by Panamanian President Laurentino Cortizo.

The new legislation creates a regulatory framework that allows “monitored and controlled” access to medical cannabis and its derivatives.

In addition, the law creates the National Program for the Study of the Medicinal Use of Cannabis and its Derivatives to promote research and develop educational campaigns addressed to the population.

The new regulation establishes that only seven licenses for the manufacture of cannabis derivatives will be granted.

According to France 24, licensed companies will be able to export seeds, plants and derivatives. To do so, they must submit an export plan and register buyers with Panama's regulatory authorities.

Meanwhile, the law establishes that it is prohibited to sell cannabis from home or outside authorized establishments and that advertising pertaining to marijuana may only appear in scientific journals, not the media or social networks.

Growing marijuana could result in a penalty of ten to fifteen years in prison.

Merrill Lynch Relaxing Its Approach To Cannabis Businesses

Merrill executives unveiled plans for “streamlining” and adding more “flexibility” to the process of onboarding clients who own or invest in marijuana-related businesses, as part of its new initiative.

Merrill Lynch Wealth Management executives launched the Project Thunder initiative to address some of the frustrations of the firm’s financial advisors.

The program is introducing relatively small tweaks initially and will include a total of at least 24 changes over a period of eight weeks.

Markets

Over the five trading days of this week:

The ETFMG Alternative Harvest ETF (NYSE:MJ): gained 0.4%. The AdvisorShares Pure Cannabis ETF (NYSE:YOLO): rose 0.6%. The AdvisorShares Pure US Cannabis ETF (NYSE:MSOS): advanced 0.6%. The Cannabis ETF (NYSE:THCX): was up 0.1%. The Amplify Seymour Cannabis ETF (NYSE:CNBS): advanced 1.7%. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed the week up 0.6%.

M&A

Acquiring Company Acquired Company Price Conditions
Cresco Labs Inc. (CSE:CL) (OTCQX:CRLBF) Cultivate $90M Cash and stock
Ayr Wellness Inc. (CSE:AYR) (OTCQX:AYRWF) PA Natural Medicine $80M Cash and stock
Planet 13 Holdings Inc. (CSE:PLTH) (OTCQX: PLNHF) License owned by Harvest Health & Recreation Inc. (OTCQX:HRVSF) $55M Cash
The Valens Company Inc. (TSX:VLNS) (OTCQX:VLNCF) Citizen Stash Cannabis Corp $54.3M Stock
Harborside Inc.  (CSE:HBOR) (OTCQX:HBORF) Accucanna $4.92M Cash and stock
Green Thumb Industries Inc. (CSE:GTII) (OTCQX:GTBIF) GreenStar Herbals Undisclosed Undisclosed

Financings

Company Lead Financier Amount
Ascend Wellness Holdings, Inc. (CSE:AAWH) (OTCQX:AAWH) Seaport Global Securities $210M senior secured term loan
BeLeaf Medical AFC Gamma, Inc. (NASDAQ:AFCG) $23M
Hound Labs Entourage Effect Capital $20M
Lowell Farms Inc. (CSE:LOWL) (OTCQX:LOWLF) Beehouse Partners $18M non-brokered private placement
 MAINSTEM Merida Capital Holdings $5M

Earnings Reports

Harborside Inc. (CSE:HBOR) (OTCQX:HBORF) reported its financial results for the second quarter ending June 30, 2021, revealing total net revenue of $15.4 million which compares to $12.4 million in the same period of 2020. Red White & Bloom Brands Inc. (CSE:RWB) (OTCQX:RWBYF) reported its select second-quarter financial results and subsequent events revealing quarterly revenue of $13.3 million up by 13% from $11.8 million in Q1, 2021. The Toronto-based company also disclosed adjusted sales for the first six months of $58.5 million.

Also reporting earnings this week were:

Water Ways Technologies Inc. (TSXV:WWT) (OTCPK: WWTIF) Australis Capital Inc. (CSE:AUSA) (OTCQB:AUSAF) dba Audacious Panaxia Labs Israel Ltd. (TASE: PNAX) (OTCPK: PXLIF)

Find all the details on these and other earnings reports on Benzinga Cannabis’ Earnings Center.

Greenlane And KushCo Complete Merger

Greenlane Holdings, Inc. (NASDAQ:GNLN) and KushCo Holdings, Inc. (OTCQX:KSHB) completed their previously announced merger. The combined company, operating as Greenlane, brings together two of the pioneering cannabis ancillary product and service companies with more than 26 years of operating history to create an undisputed leader in the cannabis industry.

International News

Medical Marijuana, Inc. (OTCPK: MJNA)’s subsidiary Kannaway launched its operations in Hong Kong.

One of Israel’s largest cannabis companies, InterCure Ltd. (NASDAQ:INCR) began trading on the NASDAQ Global Market on Wednesday.

Khiron Life Sciences Corp. (TSXV:KHRN) (OTCQX:KHRNF) has registered its first two finished medical cannabis products in Peru.

Tech

WM Technology Inc (NASDAQ:MAPS)’s Weedmaps launched an enhanced Apple (NASDAQ: APPL) iOS app. The new app introduces a simpler way for its roughly 10 million monthly users to submit orders with licensed retailers directly within the app. 

Leafly’s iOS app update will now allow adults in legal markets to place pickup orders for cannabis products within the app. A new update to Leafly’s iOS app will enable iPhone and iPad users to place pickup orders for cannabis in legal state markets.

Amazon.com, Inc. (NASDAQ:AMZN) is asking its delivery partners to openly advertise that they don’t screen applicants for marijuana use in an effort to address the shortage of the company's delivery drivers.

Top Stories Of The Week

Check out the top stories on Benzinga Cannabis this week:

Michigan Report: Marijuana Reg Agency's Social Equity Plan, Another Weed Grow Facility And Cannabis Industry Just Keeps Booming EDM Sensation GRiZ Launches Cannabis Brands Astro Hippie, Telescope Understanding Fire & Flower's Bet To Compete With The Largest Cannabis Tech Companies Apple's Cannabis iPhone App Is Benefiting Businesses And Consumers, Where's Google Play Store? Federal Cannabis Legalization Could Trigger Higher Prices In California Keeping The Illicit Market Thriving Tilray Stock Attempts Bullish Break As Seasonal And Political Catalysts Approach This Cannabis Company Has A Better 5-Year Return Than Ford, Alibaba, Facebook And Zynga Chart: Cannabis Stocks Show Strong Correlation To Recent Quarterly Results Chart: Cannabis Stocks Show Strong Correlation To Recent Quarterly Results Joe Biden Can No Longer Hide From Cannabis Legalization Efforts

Top Spanish Stories

Merrill Lynch Relaja su Relación con los Negocios de Cannabis Video: La Mamá de Tiago Habla de ‘Sola’ – Toda la Verdad LEGAL, Capítulo I: Conociendo a Tincho Tinchín Elecciones en Argentina: Nicolás del Caño a Favor de la Marihuana y en Contra del Bitcoin L-Gante y Feinmann, Mano a Mano: Marihuana, Vidal, Cristina y Una Promesa Inesperada De Ushuaia Hasta La Quiaca: la Ruta 40 del Cannabis en Argentina Cómo Hacer una Desintoxicación de THC María Eugenia Vidal Sobre la Marihuana: ‘Una Cosa es Fumarte un Porro en Palermo y Otra en la 1-11-14’ Cómo Comprar Solana (SOL) Oxicodona, Cannabis y Reducción de Daños: Hablamos con el Dr. Peter Grinspoon de la Universidad de Harvard

Lead image by Ilona Szentivanyi. Copyright: Benzinga.

Its Time to Double Down on Intel Stock

I was recently underwater on my latest investment in Intel (NASDAQ:INTC). But rather than sell my shares of INTC stock, I doubled down.

Sign of Intel (INTC stock) at entrance of The Intel Museum in Silicon ValleySign of Intel (INTC stock) at entrance of The Intel Museum in Silicon Valley

Source: JHVEPhoto / Shutterstock.com

While I love my shares in Nvidia (NASDAQ:NVDA) and Taiwan Semiconductor (NYSE:TSM), I refuse to believe the conventional wisdom that Intel is a dead parrot.

This is a chip company selling at less than 12 times earnings. It pays a dividend yielding 2.6%. It just reported quarterly earnings of $5.1 billion, or $1.24 per share, on revenue of $19.6 billion. That’s more than 20 cents of every dollar hitting the net income line.

Intel’s performance looks bad only compared to other semiconductor companies. Advanced Micro Devices (NASDAQ:AMD) has delivered twice Intel’s capital gains in 2021. Even Texas Instruments (NASDAQ:TXN) has done better.

But I’m not buying for yesterday. I’m buying for tomorrow.

The President’s Bet on Intel

If President Joe Biden’s Administration is betting big on any U.S. company, it’s Intel.

The Administration pledged $50 billion for semiconductors as part of its Build Back Better plan. That money is meant to not only end the current chip shortage, but to ensure future semiconductors are made in America.

As a U.S.-based chip manufacturer, Intel will likely be one of the primary recipients of those funds. It’s putting $20 billion into two new Arizona fabrication plants and is looking for a U.S. site on which it will spend $100 billion over the next decade.

CEO Pat Gelsinger insists he can match the ultraviolet innovations of Taiwan Semiconductor, which will soon produce chips with circuit lines just three nanometers apart. In the meantime, he’ll take all their extra production.

He’s also talking up a new “angstrom” era starting in 2024. An angstrom is one-tenth of a nanometer. The new technology that will come with this era is dubbed the RibbonFET and is Intel’s first new transistor technology since 2011.

Against All Odds, INTC Stock May Still Be a Winner

Gelsinger has admitted to China’s cost advantages. It will cost twice as much to build chips in the U.S. as it would to build them there. It’s why companies that just design chips, like Nvidia and AMD, are worth more than those that make them.

Moore’s Second Law holds that while chips get cheaper over time, the process of making them gets more expensive. Gelsinger is building in the U.S. anyway, hoping government support will allow the company to be competitive.

Intel is continuing to lose market share in the data center to AMD, but it’s not losing its lead. It will still surpass a 30% share by the end of 2021, which is twice the share AMD can expect in the same timeframe.

Despite efforts by Amazon (NASDAQ:AMZN) and other Cloud Czars to build their own chips, semiconductors are still niche products. Data center revenue for the most recent quarter was just behind that of 2020, when the pandemic saw cloud spending spike.

What the Bulls and Bears See in INTC Stock

Analysts remain unimpressed. They say Intel’s second quarter revenue was no better than it was a year ago. INTC stock fell after earnings were released. Seven of the 27 analysts following Intel at TipRanks now say you should sell it. InvestorPlace contributor Tyler Craig agrees.

Bears are seeing AMD’s continued gains in revenue and market share and believe chip-making remains a losing proposition. Intel is offering “flowery promises,” but after watching AMD stock out-gain Intel for a decade, they’re sticking with what works.

Until recently, I was a notable Intel bear. I was especially hard on former CEO Brian Krzanich, who was finally let go after he was found to be in a relationship with an employee. Among several actions he took ranging from questionable to downright criminal, he stripped Intel of its top executives which hindered its growth.

I thought Krzanich’s successor, Robert Swan, was in over his head. But to Swan’s credit, he did recruit Gelsinger, who is a different cat. He’s getting the band back together. When it’s hitting on all cylinders, Intel is the mightiest manufacturing machine America has ever seen.

On the date of publication, Dana Blankenhorn held long positions in INTC, NVDA, TSM and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. 

Apple's HomePod Makes a Small Dent in Smart Speaker Market During Debut Quarter

Apple (NASDAQ:AAPL) officially jumped into the smart speaker market in the first quarter with the HomePod, and analysts believe that sales thus far are “underwhelming.” Siri remains less capable than its competing counterparts, HomePod only supports Apple Music for full functionality, and the $350 price tag positions it at a significant premium. With HomePod being included in the company’s catch-all “Other Products” segment, investors aren’t likely to get much official data from Apple anytime soon.

That’s where third-party estimates come in.

HomePod on a shelf

Image source: Apple.

Apple shipped 600,000 HomePods in the first quarter

Market researcher Strategy Analyticsis out with its estimates on the smart speaker market for the first quarter, estimating that Apple shipped approximately 600,000 units after HomePod launched in February. Amazon.com (NASDAQ:AMZN) is maintaining its strong grip on the market, although its share did drop quite a bit. But the overall market is simply growing so quickly that the e-commerce giant still doubled unit shipments of Echo devices. Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google continues to make headway as well.

Vendor

Q1 2017 Units

Q1 2017 Market Share

Q1 2018 Units

Q1 2018 Market Share

Amazon

2 million

81.8%

4 million

43.6%

Google

0.3 million

12.4%

2.4 million

26.5%

Alibaba

0

0%

0.7 million

7.6%

Apple

0

0%

0.6 million

6%

Xiaomi

0

0%

0.2 million

2.4%

Others

0.1 million

5.8%

1.3 million

13.9%

Total

2.4 million

100%

9.2 million

100%

Data source: Strategy Analytics. Figures rounded.

The Chinese market for smart speakers continues to grow, with local vendors like Alibaba and Xiaomi (which is preparingto go public soon) stepping up to meet the demand, according to Strategy Analytics. Amazon, Google, and Apple do not currently ship smart speakers into the Middle Kingdom. On the earnings callearlier this month, CEO Tim Cook noted that HomePod is only available in the U.S., U.K., and Australia right now, with availability in more markets coming soon.

While Apple generally does not place much value in unit share, it’s clear that Amazon and Google are enjoying unit growth thanks to broader portfolios of devices offered at lower price points. That’s why the “HomePod Mini” that Apple is rumored to have in the pipeline has a lot of potential, as it would make the idea of buying multiple devices a more tenable proposition for consumers.

Of course, HomePod was only available for about half of the quarter, so its performance isn’t all that representative quite yet.Let’s see how the Mac maker fares in the quarters ahead.

Should You Buy Home Depot Stock After Earnings? 3 Pros, 3 Cons.

Home Depot Inc (NYSE:HD) disappointed investors with a rare soft earnings report on Tuesday. The company did beat on EPS by two cents. It came up very short on the revenues line, however, with $24.9 billion in sales falling $270 million short of expectations. That left Home Depot with just a 4.4% year-over-year growth rate. That wasn’t enough to please investors. HD stock is trading down modestly following its earnings report.

That may not be a fair reaction, however. As we’ll see in the pros and cons below, the earnings miss was largely driven by the weather. Bulls and bears disagree on the broader ramifications of that. Zooming out, Home Depot is the best player in its field, but its stock also fetches a premium valuation. That said, is Home Depot stock worth buying today?

HD Stock Cons

Will 2018 Miss Guidance?: HD stock bulls will say that this sales miss was weather-driven and not important. They have a valid point. But they could be wrong.

Reuters quoted an analyst who doubted that Home Depot will make up all the lost sales in future quarters: “The lower-than-expected sales could pressure Home Depot’s ability to meet its full-year targets,” Loop Capital analyst Laura Champine said. “How much of the sales they’ve missed will they get back? That’s the key.”

Indeed, given Home Depot’s steep discounting on items such as patio furniture, the company may see a more than one quarter impact on its profitability.

Largely Played Out Market: Within the United States, there’s likely not much opportunity for additional stores. For example, in the latest quarterly report, we see that Home Depot added just four net stores over the past year.

That means that growth opportunities going forward will be diminished. The company has done well internationally. It is one of Canada’s largest home improvement chains. Additionally, it has more than 100 stores (and growing) in Mexico, which should be a booming market in coming years. All that said, without much growth opportunity in the United States, expect long-term margins to decline as competitors cut prices to try to maintain market share. As a mature market, investors shouldn’t expect the same eye-popping growth that Home Depot stock previously delivered.

More Expensive Than Lowe’s: HD stock is significantly more expensive than stock in its chief rival, the Lowe’s Companies, Inc. (NYSE:LOW). Lowe’s stock is selling at 21x trailing PE and 14x forward PE. That matches up favorably against Home Depot stock at 25x trailing and 19x forward PE. The comparison looks even worse for Home Depot once you realize that it has a far more leveraged balance sheet than Lowe’s which should, in theory, make Home Depot more profitable.

On a revenues basis, HD stock also looks pricey. The market values HD stock at $221 billion for $100 billion in annual revenues. Whereas Lowe’s has a market cap of $72 billion against $69 billion in revenues. That means that the market is willing to pay a dollar for a dollar of Lowe’s revenue, but more than 2x that for a dollar of Home Depot revenues. Home Depot has the better brand, but is it worth that much of a premium?

HD Stock Pros

Earnings Softness Was Weather-Driven: Home Depot’s management said that unusually cold weather this spring caused the earnings miss. Due to abnormally chilly conditions across much of the U.S., folks delayed the start of their gardening and yardwork this year. That led to, predictably, serious volume declines for products such as fertilizers. Specifically, that led to the CEO stating that: “The miss in terms of garden was significant against what we planned”.

Management suggested this was merely shifted demand, not an overall loss. So far, the company sees May sales growing at a double-digit rate, making up for much of the first quarter’s shortfall. Overall, that allowed Home Depot to maintain guidance for the full year. On the whole, the bulls say that the earnings miss won’t have lingering effects for Home Depot stock.

Web-Resistant Retailer: Retail used to be a classic sector for investors. Lately though, given Amazon.com, Inc.’s (NASDAQ:AMZN) monopolization of wide swaths of the retail landscape, investors have given up on shopping investments.

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Home Depot stock, however, has fared well despite the so-called retail apocalypse. There are several good reasons for that. For one, Home Depot has expanded internationally in Mexico with its huge construction market. Within the U.S., do-it-yourselfers seem to still benefit from having in-store help to guide purchases. Also, for certain projects, getting a part or tool is an immediate need, where the consumer won’t wait two days for delivery. Finally, many of Home Depot’s products are heavy or bulky, making online shipping uncompetitive with the company’s streamlined supply chain.

Huge Dividend/Buyback: HD stock treats its shareholders well. Management has been jacking up the dividend for more than a decade now. Over the past 10 years, it has averaged a 16% compounded dividend growth rate. During the past five years, as the housing market recovered, management has gotten even more generous, with a 24% dividend growth rate.

That means that while Home Depot stock yields 2% now, a buyer five years ago is now getting 5.7% on their initial investment. Don’t overlook the power of a modest starting yield that grows explosively. On top of that, Home Depot is buying back tons of stock. Since 2010, the amount of Home Depot stock outstanding has plunged from 1.8 billion shares then to just 1.15 billion today. That creates a ton of value for the remaining stockholders and supercharges returns and dividend growth.

HD Stock Verdict

Home Depot is the best-in-class retailer in its niche. It’s largely Amazon resistant, and has built a nice web presence itself. Furthermore, its international efforts, particularly in Mexico, give it further growth opportunities even with the US market tapped out.

That said, HD stock is expensive in its own terms and compared against Lowe’s. The U.S. market is unlikely to perform nearly as well as in the past, leading to falling profit margins. Home Depot is a great company, but the stock price reflects that already. As for what the stock will do for the remainder of 2018, much will come down to whether this earnings whiff was a one-off or the start of a problematic trend.

At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Tw

5 Stocks That Could Be the Next Amazon

Amazon.com, Inc. (NASDAQ:AMZN) has been one of the more impressive stocks of the past 25 years. In fact, AMZN now has returned nearly 100,000% from its IPO price of $18 ($1.50 adjusted for the company’s subsequent stock splits).

A large part of the returns have come from two factors. First, Amazon has vastly expanded its reach. What originally was just an online bookseller now has its hands in everything from cloud computing to online media to groceries. And its shadow is even larger. A potential entry by Amazon has rattled pharmacy stocks and medical distributors, among others.

Secondly, as a stock, AMZN has managed the feat of keeping a growth stock valuation for over two decades. I’ve long argued that investors can’t focus solely on the company’s high P/E ratio to value Amazon stock. But however wise an investor might the current multiple is, the market has assigned a substantial premium to AMZN stock for over 20 years now.

It’s an impressive combination — and one that’s likely impossible, or close, to duplicate. But these five stocks have the potential to at least replicate parts of the Amazon formula. All five have years, if not decades, of growth ahead. New market opportunities abound. And while I’m not predicting that any will rise 100,000% — or 1,000% — these five stocks do have the potential for impressive long-term gains.

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5 Stocks That Could Be the Next Amazon Stock: JD.com (JD) 5 Stocks That Could Be the Next Amazon Stock: JD.com (JD)Source: Daniel Cukier via Flickr

JD.com Inc(ADR) (NASDAQ:JD) is the company closest to following Amazon’s model. While rival Alibaba Group Holdings Ltd (NYSE:BABA) gets most of the attention, it’s JD.com that truly should be called the “Amazon of China,” as Will Healy pointed out in December.

Like Amazon (and unlike Alibaba), JD.com holds inventory and is investing in a cutting-edge supply chain. It, too, is expanding into grocery, like Amazon did with its acquisition of Whole Foods Market. A partnership with Walmart Inc (NYSE:WMT) should further help its off-line ambitions. JD.com even is cautiously entering the finance industry.

That ability to both provide best-in-class logistics and satisfy a wide range of customer needs is what has made Amazon a success. And while JD may not rise to the scale of Amazon, at its current valuation it doesn’t have to. After a recent pullback, JD trades at less than 26x forward EPS. That’s despite 40% revenue growth in 2017, and expectations for a 30% increase in 2018.

And it sets up a scenario where JD stock could — if sentiment finally turns in its favor for good — appreciate for years, thanks to both strong bottom-line growth and an expanding multiple from optimistic investors.

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5 Stocks That Could Be the Next Amazon Stock: Square (SQ) 5 Stocks That Could Be the Next Amazon Stock: Square (SQ)Source: Chris Harrison via Flickr (Modified)

Admittedly, I personally am not the biggest fan of Square Inc (NYSE:SQ) stock. I like Square as a company, but I’ve questioned just how much growth is priced into SQ already.

Of course, skeptics have done little to dent the steady rise in AMZN stock. And valuation aside, there’s a clear case for Square to follow an Amazon-like expansion of its business. Back in January, Instinet analyst Dan Dolev compared SQ to AMZN and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), citing its ability to expand from its current payment-processing base:

In 10 years, Square is likely to be a very different company helped by accelerating share gains from payment peers and relentless disruption of services like payroll and human resources.

Just as Amazon used books to expand into e-commerce, and then e-commerce to expand into other areas, Square can do the same with its payment business. The small business space is ripe for disruption, as Dolev points out. Integrating payments into payroll, HR, and other offerings would dramatically expand Square’s addressable market – and lead to a potential decade or more of exceptional growth.

Again, I do question whether that growth is priced in, with SQ trading at ~about 12x the company’s 2018 guidance for “adjusted” revenue. But if — again, like AMZN — Square stock can combine a high multiple with consistent, impressive, expansion, it has the path to create substantial value for shareholders over the next five to 10 years.

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5 Stocks That Could Be the Next Amazon Stock: Shopify (SHOP) 5 Stocks That Could Be the Next Amazon Stock: Shopify (SHOP)Source: Shopify via Flickr

E-commerce provider Shopify Inc (NYSE:SHOP) probably doesn’t have quite the same opportunity for expansion as Square. And it too has a hefty valuation, along with a continuing bear raid from short seller Citron Research.

But I’ve remained bullish on SHOP stock — and here, too, a recent pullback presents a buying opportunity. Shopify is dominant in its market of offering turnkey e-commerce services to small businesses. That’s exactly where consumer preferences are headed: small and unique over large and bland. And because of offerings like Shopify (and Amazon Web Services), those small to mid-sized businesses can compete with the giants.

Meanwhile, Shopify does have the potential to expand its reach. Just 29% of revenue comes from overseas, a proportion that should grow over time. It’s moving toward capturing larger customers as well through its “Plus” program, picking up Ford Motor Company (NYSE:F) as one key client. The development of an ecosystem for suppliers and the addition of new technologies (like virtual reality) give Shopify the ability to offer more value to customers — and to take more revenue for itself.

Like SQ, SHOP is dearly priced. But both companies have an opportunity to grow into their valuations. And given long runways for Shopify’s adjacent markets, it should keep a high multiple for some to come. As a stock, if not quite as a company, SHOP has a real chance to follow the AMZN formula for long-term upside.

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5 Stocks That Could Be the Next Amazon Stock: Roku (ROKU) 5 Stocks That Could Be the Next Amazon Stock: Roku (ROKU)Source: Shutterstock

Roku Inc (NASDAQ:ROKU) might have the best chance of any company in the U.S. market to follow Amazon’s strategic playbook. The ROKU stock price is a concern: I wasn’t thrilled about the price after a huge post-earnings gain back in November, and even near a five-month low ROKU isn’t close to cheap.

But — perhaps even moreso than Square — Roku now isn’t what Roku is going to be in ten years. The hardware business is a loss leader, but one that allows Roku to serve as the gateway to content for millions of customers. As the company pointed out after Q4 earnings, it’s already the third-largest distributor of content in the U.S. The Roku Channel is seeing increasing viewership. The company offers pinpoint targeting of advertisements — without the messy data problems afflicting Facebook, Inc. (NASDAQ:FB).

Roku is becoming increasingly embedded in TVs, though a deal between Amazon and Best Buy Co (NYSE:BBY) raised some fears about those software efforts going forward. It has a plan to roll out home entertainment offerings like speakers and soundbars, creating a long-sought integrated experience. It could even, as it grows, look to develop or acquire content itself, positioning Roku not as just a conduit to Netflix, Inc. (NASDAQ:NFLX) but a rival.

The bull case for Roku stock is that its players are like Amazon’s books — a way to garner customers and get a foot in the door of the exceedingly valuable media business. What Roku does now that it has entered will determine the fact of ROKU stock. But the amount of options and a reasonable valuation (Roku’s market cap is barely $3 billion) mean that betting on its strategy could be a lucrative play.

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5 Stocks That Could Be the Next Amazon Stock: Nvidia NVIDIA Corporation Stock (NVDA) Won't Stay Down Long After Shocking Analysts Source: Shutterstock

In the context of the stocks chosen here, Nvidia Corporation (NASDAQ:NVDA) doesn’t seem particularly expensive. But in the context of the traditionally cyclical — and low-multiple — semiconductor space, a ~34x multiple to 2018 consensus EPS estimates, even backing out net cash, is awfully pricy.

And with NVDA up a whopping 1,550% in just the past five years, investors would be forgiven for thinking the run might come to an end. Indeed, NVDA stock hasn’t really moved over the past four-plus months.

But the huge amount of secular tailwinds behind Nvidia suggest that the company should be able to drive torrid growth for years to come – and to maintain a multiple that looks rather high on a historical basis. The company’s automotive business gets a fair amount of press, given its potential applications to autonomous driving. But that growth likely won’t come in earnest until the next decade.

It’s the datacenter business that looks most appealing in the near term. Revenue in that category more than doubled in 2017. Thanks to cloud providers like AWS, demand should continue for years to come. And with Nvidia taking share from Intel Corporation (NASDAQ:INTC), its growth should be even better than that of the market. High-end gaming demand should rise, and virtual reality will add another tailwind there.

Unlike, say, Roku (or early-days Amazon), Nvidia’s growth opportunities are mostly known. But at $223, even with a high multiple, they’re not fully priced in. I still see an easy path to $250 for NVDA in the near term. Longer-term, its presence (if not outright dominance) of key markets should lead Nvidia stock to double, at least.

As of this writing, Vince Martin has no positions in any sec