Following a stellar performance in 2023, fueled by the artificial intelligence (AI)rush, the tech sector appears promising this year. However, not all tech stocks are a good buy. One such stock is the e-signature company DocuSign (DOCU). Wall Street is bearish about DOCU's prospects, largely due to its limited growth potential.

Instead, investors may want to consider other rapidly expanding sectors, such as cannabis. However, investing in cannabis stocks requires a strong risk appetite, along with some patience. Innovative Industrial Properties (IIPR) offers an indirect option for investors who are still skeptical of investing in the cannabis industry. 

According to Statista, the U.S. cannabis industry is expected to grow at a compounded annual rate of 14% to be worth $67.1 billion by 2028. For those seeking growth opportunities in the cannabis sector while earning regular passive income, IIPR stands out as an intriguing prospect. Let's learn more about these two stocks.

1 Stock To Buy: Innovative Industrial Properties

IIPR exists at the intriguing intersection of real estate and cannabis. It is a real estate investment trust (REIT) that provides specialized properties to state-licensed medical-use cannabis operators. As cannabis is federally illegal in the U.S., most cannabis growers have limited access to legal production facilities and financing options.

Down 20% from its 52-week high, Innovative Industrial Properties stock allows investors to participate in the burgeoning cannabis industry while minimizing risk. 

IIPR, with its unique business model, acquires and leases out these properties. Its tenants pay a rental income in return, which is its sole source of revenue. The REIT already owns 108 properties across 19 states, 98.5% of which are triple-net leased. 

Its tenants include popular multi-state operators such as Green Thumb Industries (GTBIF), Trulieve Cannabis (TCNNF), and Cresco Labs (CRLBF), among others. Moreover, its emphasis on entering into long-term lease agreements with tenants, with a weighted-average lease term of 14.9 years, ensures a consistent and predictable income stream. 

In Q3, IIPR’s revenue jumped 10% year-over-year to $77.8 million. Adjusted funds from operations (AFFO) also increased 7.8% to $64.8 million from the prior-year quarter. AFFO is a comparable metric to net income for non-REITs, which measures how much money is available to be paid out as dividends.

Furthermore, the cannabis industry is expanding drastically, propelled by rising social acceptance, medical benefits, and the prospect of significant economic returns. As more states consider or implement cannabis legalization, IIPR is poised to capitalize on the expanding market - particularly as regulators weigh a reclassification of marijuana at the federal level.

An added benefit is that IIPR is a high-yield dividend stock with a forward yield of 7.7%, which is higher than the real estate sector average of 4.5%. Like other REITs, IIPR is legally required to pay out 90% of its earnings in dividends, making it appealing to income-seeking investors.

Wall Street rates IIPR as a “moderate buy.” Out of the six analysts covering the stock, two rate it a “strong buy,” while four rate it a “hold.” The average target price of $107.80 implies a potential upside of 17.3% from current levels.

Trading at 11.3 times forward funds from operations, IIPR stock seems reasonably valued, given its long-term growth prospects in the cannabis industry and an attractive yield.

1 Stock To Avoid: DocuSign

DocuSign provides businesses with a transformative platform that streamlines document workflows. Its platform eliminates the need for paper-based procedures and physical signatures by allowing users to securely sign and send documents.

Last month, Reuters reported that private equity firms Bain Capital and Hellman & Friedman were competing to acquire the e-signature company, which has a market capitalization of $12.7 billion at the moment; so far, DocuSign has made no official announcement. The stock has gained a mere 2.8% over the last year, compared to the S&P 500 Index’s ($SPX) gain of 18.5%.

However, one Wall Street analyst is skeptical about DocuSign stock following the buyout rumors. This month, Wells Fargo analyst Michael Turrin reiterated his "sell" rating on the stock, with a target price of $55. Turrin believes DOCU may face some pressure this year if its acquisition deal does not go through, as the market appears to have factored in the buyout rumors. Turrin also thinks DocuSign's growth trajectory is uncertain, given the competitive pressures. 

For the third quarter ended Oct. 31, DocuSign’s revenue increased 9% year-over-year to $700.4 million. While its Subscription segment revenue increased 9% in the quarter, Professional Services and Other revenue dropped 16% from the prior-year quarter. Total billings grew 5% year-over-year. Adjusted net income came in at $0.79 per share, up from $0.57 in the year-ago quarter.

While the overall results appear solid, the deceleration in billings growth due to macroeconomic headwinds has analysts concerned. Compared to the 5% growth in Q3, billings grew 10% year-over-year in the second quarter of fiscal 2024. DocuSign faces stiff competition in the electronic signature market. This challenges its ability to maintain or expand its market share, making it vulnerable to pricing pressures and potentially impacting its revenue growth.

Looking ahead, analysts predict a 5.8% increase in revenue to $2.9 billion and a 0.13% dip in earnings in fiscal 2025. Currently priced at 21 times forward 2025 earnings, DocuSign is expensive for a stock with limited growth prospects. 

Overall, Wall Street is bearish on DOCU stock, rating it a "hold." Out of the 16 analysts covering the stock, three rate it a “strong buy,” nine rate it a “hold,” one recommends a “moderate sell,” and three rate it a “strong sell.” DOCU has already surpassed its average target price of $59.15. 

The risk-reward profile for DocuSign doesn’t make it a worthwhile investment in 2024, making this stock one to avoid.