Dealmaker’s Diary: This Stock Is Blazing New Trails in Real Estate

Alpesh Patel|September 12, 2024

We’re blazing a trail in this week’s Dealmaker’s Diary.

It’s a real estate investment trust – yes, another one! – that combines innovation with real estate.

The $3.4 billion company has steady and growing revenues thanks to its specialized lease agreements…

It pays a solid 6% dividend, which will be in high demand as rates fall…

It meets my strict requirements on growth, value, and income…

And the stock could be a money-doubler thanks to its low valuation.

Get all the details on the company – including its ticker – in my latest video.

Click on the thumbnail below to watch.

 

TRANSCRIPT

Hi, everyone. Welcome to another Dealmaker’s Diary and Stock of the Week.

We’re combining two things here… innovation, which you’d associate more with technology, and property, which is definitely a sector doing well at the moment.

So let me walk you through this one… why it crossed my desk… why my team put it in front of me… and why I wanted to share it with you.

Innovative Industrial Properties (IIPR) is a real estate investment trust. Yes, another one.

But if the numbers work, the numbers work.

Now here’s where it gets interesting. The company is focused on the acquisition, ownership, and management of specialized properties leased to experienced state licensed operators for regulated cannabis facilities.

I’ve never taken cannabis, medicinally or otherwise, or any other kind of sort of prohibited drug or semi-prohibited drug.

But what I wanted to say is that’s not the reason why I looked at the stock. I don’t look at narratives and stories, what’s the fad, what’s exciting, and so on.

It was the numbers. The same reason every single time.

The company’s ability to navigate the complexity of cannabis regulations is good. I don’t have an issue with that.

The market cap is $3.4 billion. Revenue is nearly $80 million and increasing.

Again, it’s the numbers. And I’m going to give you some more.

Dividend yields of 6%. Wow.

A few years ago, 2020 and 2021, everyone getting a bit too excited about this whole cannabis story, and then the stock fell off a cliff in 2022 with the rest of the market.

It’s a bit like the Bitcoin fad. Everyone forgets about it, so it drops back. And then gradually, when nobody’s talking about it as much, it starts to inch forward.

The company scores an 8 on my Growth-Value-Income rating. Now, remember, anything with a 7, 8, 9, or 10 on my proprietary score meets my bottom line. I look the valuation of companies, growth of companies, dividend yields of companies. Seven, 8, 9, or 10… this one does it.

Forecast P/E ratio of 21 means you’re paying $21 for every expected dollar of future profit. You’re paying $21. Not cheap, but not expensive.

The CROCI is 11.3. Anything above 10% usually means in the top quartile of all companies, and that’s important. Click here to see why CROCI and being in the top quartile is important.

It’s a Goldman Sachs Wealth Management rule. They’ve done research to show it’s a good way of selecting companies.

Volatility is 23%. That’s not too volatile given the sector it’s in.

Sortino and Alpha, well, you can’t have everything on these. With GVI Investor, I’m even stricter, but I’ll give those two a pass given everything else is ticking boxes.

And I really like the direction of travel of the monthly MACD. It’s sort of chugging along in this direction. It could be one of the few stocks in September that is not more likely to fall than it is to rise. Now, if we can keep going at that angle of inclination without any drops more than, say, 25%, that’s not a bad ride.

That’s a pretty chilled out, relaxed kind of ride, for returns.

Here’s where it also gets a bit exciting. On a discount cash flow basis, the stock is 51% undervalued. So you could be looking at a money-doubling situation.

No guarantees, of course. But that’s what could happen were it to go back to where discount cash flow suggests the valuation should be.

I hope you enjoyed that. I hope it, well, to be honest, gives you the kind of relaxed feeling you should have if these drugs are supposed to work the way they do… because that’s how you should be with your portfolio. It shouldn’t be giving you a sort of caffeinated hit where you’re all panicked and stressed and thinking, what do I do, and biting your nails.

You should be as relaxed as somebody who’s been taking these would be… not having the pain you’d normally associate with investing if you’re doing it wrong.

So, anyway, that’s a tortuous metaphor or analogy as how to investing should be. I might write an article about that. I think that’s got legs to run as it were, rather than to lie back and relax.

Thank you. Hope you enjoyed that. Just too much fun to have with this topic.