3 High Growth REITs For Profits in an Amazon World

The Thanksgiving weekend marks the official start to the Christmas buying season. There is Black Friday on the day after and now Cyber Monday on the following Monday. The Black Friday to Cyber Monday weekend is one of the biggest shopping events of the year and each year online sales take a larger portion of the take. According to Forbes in 2016, online sales for the weekend increased by 16.4%. Also, according to a Forbes article, this year total retail Thanksgiving weekend sales are forecast to increase by 47% with online sales grabbing a 40% share.

The point to remember is that when a shopper buys something online, the Internet does not magically delivery it to the buyer’s home. There is an extensive infrastructure network that makes sure an online sale is filled and delivered. There is a chain of types of commercial real estate involved from the time an online order to buy is placed until that item is delivered to the buyer.

If you are like me, you might have trouble with buying shares of Amazon.com, Inc. (Nasdaq: AMZN), which trades at a P/E of near 300 and the company’s business model seems focused on how low they can cut profit margins to steal no-profit sales from other retailers.

An alternative way to invest and profit from Amazon and the growth in online sales is to own shares of the real estate investment trusts (REITs) that provide the warehouse space needed to fill and deliver online orders. These REITs can grow right along with the growth in online sales regardless of who is doing the selling. The difference is they can do it profitably, pay attractive dividends to investors and grow those dividends over time. Here are three REITs that directly benefit from the growth in online retail sales.

Equinix, Inc. (Nasdaq: EQIX) owns and leases spaces in the datacenter properties it owns. The company has a global footprint with 180 data centers located on every populated continent. Equinix converted to REIT status in late 2014 and started paying dividends for the first quarter of 2015.

Growth is derived from the need for more Internet communications and data computing power. This is directly tied to the growth in online retail sales. Free cash flow reported as funds from operations (FFO) and the dividend are expected to grow at a low teens rate.

Data center and growth focused REIT expert Bill Stoller rates EQIX as his highest conviction REIT for 2018. The stock currently yields 1.7%.

Related: 5 REITs Raising Dividends in December

Monmouth Real Estate Investment Corp (NYSE: MNR) is an industrial property REIT that owns 108 warehouse and logistics properties. Monmouth is unique in that 54.5% of its revenue comes from lease contracts with leases from FedEx Ground, FedEx Express, and FedEx Supply Chain Services. To be blunter, Monmouth Real Estate is a significant landlord for FedEx. FedEx has evolved into a dominant logistics company including delivery of online sales purchases. Monmouth’s industrial properties are “mission critical” for the processing and delivery of online retail sales. The company recently boosted its quarterly dividend by 6.25%. The stock yields 3.9%.

With a $35 billion market cap, Prologis Inc (NYSE: PLD) is the largest industrial REIT. The company is the world’s leading owner, operator and developer of logistics real estate. It is likely that almost every product sold by online retailers passes once or more through a Prologis owned property.

The company forecasts a 162% projected growth of e-commerce sales from 2015-2020. Company presentations point out that e-commerce business requires approximately three times the warehouse floor space compared to brick and mortar retailers. Online sales do not have stores, but they still require a lot of commercial real estate space to operate their businesses. The difference is that space is in industrial warehouses instead of stores.

For Prologis, the growth in e-commerce and the other logistics businesses it supports with allow the company to growth profits, FFO and dividends at a low mid-teens growth rate. The stock yields 2.6%.

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Source: Investors Alley 

3 Buy Signals for This Hated Sector

It seems like investors were writing off the real estate sector entirely.

With the rise of technology used to shop online, work from home and even go to school, real estate has been a hated sector.

But it’s a sector I have been a fan of this year, triggering gains of 15% and 17% in my Pure Income service.

That’s because even though I know the landscape for real estate is changing, I still see the crowds at the malls, the wait times at restaurants and the continued need for hospitals and health care facilities.

So the decline in values recently has looked like an opportunity to me.

But my personal experience or viewpoint doesn’t have anything to do with my recommendation today.

 Instead, three separate computer-based buy signals are flashing bullish signals on the real estate sector, and I have a possible triple-digit opportunity for you.


Let me explain.

Three Buy Signals for the Real Estate Sector

Let’s start with the three buy signals on the sector before I give you the opportunity.

The first is the most basic, a price chart of the SPDR Real Estate Select Sector ETF (NYSE: XLRE).

Three separate computer-based buy signals are flashing bullish signals on the hated real estate sector, and I have a possible triple-digit opportunity.

This is showing a possible breakout of a long trend channel.

It may have just had a false breakout, since the price jumped above the trendline, then fell back below it. But this can also hold as a new, steeper uptrend for the exchange-traded fund (ETF). As long as it can hold above its previous peak, around $33.50, prices should continue to climb.

The second is a seasonality chart.

Three separate computer-based buy signals are flashing bullish signals on the hated real estate sector, and I have a possible triple-digit opportunity.

Right now, it is a great time to enter the real estate sector based on a 10-year seasonal analysis of the Vanguard REIT ETF (NYSE: VNQ). I used this ETF because it has data going farther back that the newly listed XLRE in the price chart.

December is clearly the strongest month to be in real estate, and we just bought a real estate investment trust (REIT) in my seasonal service, Automatic Profits Alert, a couple of weeks ago that is already benefiting from this trend.

The third chart is something you may not be too familiar with, but it is a concept I have discussed before called a Relative Rotation Graph™.

If you want to learn more about the concept, you can click here to read more about it.

Basically, it’s the idea that stocks rotate in and out of leading and lagging the market. And there are key turning points, where a sector will shift from lagging, to improving and eventually leading the market.

The real estate sector is at such a point. Take a look:

Three separate computer-based buy signals are flashing bullish signals on the hated real estate sector, and I have a possible triple-digit opportunity.

If you can read the text, you’ll notice it is in the lagging section of the chart. But when an ETF is in that section and turns sharply higher, like XLRE did, that is a sign momentum is shifting and the sector is turning around — which is the exact time we want to jump in.

A Unique Way to Profit

All told, the real estate sector is a solid buy right now.

In my service, I handpick certain stocks to benefit from these trends. For today, I’m going to recommend a unique way to profit, and that’s to buy a call option on the XLRE real estate ETF.

The option we are going to buy is the February 16, 2018, $34 call option.

With this option, we are expecting the ETF to rise as predicted by the three charts above. However, whenever you buy an option, it’s important to remember you can lose everything you paid to buy the option. Even though we have three buy signals, there’s always a chance the trade doesn’t work out, so just keep that in mind.

This option costs roughly $0.55, depending on when you purchase it. Since one contract covers 100 shares, one contract will cost about $55.

Now, I want to highlight that this is not a position that I will be tracking or updating you on, so it will be up to you to pull the trigger to take profits or cut losses.

A good rule of thumb for a trade like this is to sell half of your position at a 50% gain, and manage the second half to either take profits if it begins to fall by about 30% in value, or start to sell the second half once it is above 100%.

For a loss, you can cut it if it falls to a 50% loss.

For the ETF, all we need is it to rise about 4.2% over the next three months to hand us a 100% gain.


Chad Shoop, CMT

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Source: Banyan Hill