“I’m glad to say that no matter how you feel about Obamacare, you can make money from one of my favorite little-known companies.
“Look, I’ve studied this Obamacare law since it was first signed into effect. I’ve examined every angle on it I could.
“And after months of painstaking research, turning it inside and out, I’ve found an overlooked flaw… a flaw that one company is already blowing wide open to make millions — perhaps billions from.”
Those tempting words come from Louis Navellier today, who’s pushing his Emerging Growth newsletter with a pitch that he can turn Obamacare into a “Care package” for your portfolio, doubling your money every year for the rest of the decade.
Who wouldn’t want that, right?
The pitch is that many hospitals are going to need a big cash infusion to upgrade in preparation for Obamacare … and that this teased company, which naturally is “top secret” unless you sign up for Navellier’s $995 newsletter, will be in the prime position to take advantage. Here’s how he describes it:
“… the company in the driver’s seat is actually buying hospitals… and leasing them back to their former owners….
“Now, if a hospital doesn’t meet the targets for things like acceptances and admittances, or minimize denials of care — whatever the regulatory flavor-of-the-week is, the Feds could slash the amount of money the hospital gets paid under Obamacare.
“To comply to these more onerous regulations, many hospitals will need a quick cash infusion to buy better diagnostic equipment. Hire better personnel. Give better care.
“Like I said — all these improvements take money. So it’s either come up with the cash, or go out of business.
“And a quick way a hospital can raise cash — is to start selling assets….
“Like parking garages. Or its cafeterias. Or they can sell the entire hospital, and lease it back from its new owners.
“That’s where this company comes in… the one that buys hospitals and leases them back to their former owners.”
OK, so these kinds of sale-leaseback arrangements are pretty common across industries, whether it’s for an oil tanker or an office building or, apparently, a hospital. Lots of organizations would rather have cash today than carry a big, valuable asset on their books. So what else do we learn about this company that specializes in sale-leasebacks for hospitals?
We don’t get a lot of clues, but we do get this:
“… this company I’ve found for you and me already owns over 80 facilities nationwide, worth over $2 billion. And they’re growing so fast they’re nearly doubling every year.
“Now, there are 4,985 hospitals in America (as of 2010). The current 80 they own are just a tiny fraction of where they can be next year… and the year after that… for the rest of the decade!
“You can see the growth and the profits from this company are a tiny fraction of what they’ll be soon…
“They’re currently paying a juicy yield of nearly 6%… and with their stock price on track to double every year, an early investment in this stock NOW could be the most explosive pick for your portfolio in a decade!”
So who is Navellier teasing here? The Mighty, Mighty Thinkolator tells us that it is: Medical Properties Trust (MPW).
This is a Healthcare REIT that has been doing extraordinarily well, and has indeed doubled over roughly the past year (depending on the dates you choose). It recently dipped a bit to around $14, at which point it did have a yield of about 6%, but since then (that was when all interest rate-sensitive stocks dipped) it has come back up to $15 or so, and yields more like 5.2%. The dividend has not risen over the past five years (it was cut during the 2008 financial crisis), but has held steady over that time.
This is the most hospital-focused of the healthcare REITs, with a large portion (more than 95%) of their portfolio in acute care, long term acute care, or rehab hospitals, areas where competition may be lessened and where they say returns are greatest (most healthcare REITS are more focused on medical office buildings, ancillary hospital “campus” buildings, nursing homes and the like — there are a lot more of those kinds of facilities than there are hospitals). If you’re interested in the sector in general, you can see a pretty good list of the stocks here from the Dividend Detective — there were probably only four or five of these specialized REITs five years ago, but several new ones have come public or been spun off in recent years.
Why should you choose this particular REIT in the healthcare sector? Well, I’ve never looked at them before today but they do make a good case for themselves — you can see their recent presentation to an investor conference here. They do own roughly 80 facilities with an asset value of a bit over $2 billion, so that matches the tease … and like most healthcare REITs they should be fairly steady, and have few surprises — they have strong tenants, they say, with solid performance that should allow them to pay their bills, and they have no big debt maturities or lease expirations in the next few years. They’re also pretty well protected against inflation, with escalator clauses built into essentially all of their leases that tie annual increases to CPI inflation.
When it comes to valuation, they trade at a substantial premium to book value, which is common for the sector, and, also fairly average for the sector, they trade at about 12-13X expected FFO for next year (FFO is what REITs typically use instead of “earnings” — it’s more like cash flow, ignoring the non-cash impact of depreciation on their assets). I’d expect them to be interest-rate sensitive like any other REIT, and it’s certainly possible that healthcare regulation could hurt them — but since they generally own urban and suburban hospitals that sound like they’re pretty busy the regulatory downside might be limited.
That’s about all I can tell you after a quick look at MPW this morning — I’ve considered healthcare REITs several times in the past but never bought them, often because they looked pretty expensive as they became “hot” stocks for individual investors in recent years, but this one actually looks like it might have a stronger growth platform than many, and I do generally like the hospital focus. If you’ve got an opinion on the sector or this stock, feel free to let it loose with a comment below. Thanks!
It's Personal Capital -- they've got half a million people using it already, and I use it to understand all of my personal accounts, from mortgages to investments, and keep track of them and help me visualize how I'm diversifying and whether I'm meeting my financial goals. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.