Navellier’s “Obamacare” Care Package — Hospital Owner to Double?

Sleuthing out the latest tease from Louis Navellier's Emerging Growth newsletter

By Travis Johnson, Stock Gumshoe, July 24, 2013

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“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!

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14 Comments on "Navellier’s “Obamacare” Care Package — Hospital Owner to Double?"

avatar

Dennis
Irregular
32
July 24, 2013 11:47 am

Thanks for your quick detailed research Travis. I shall due my dd now.

JS
Guest
0
JS
July 24, 2013 2:20 pm

How do you do your dd? ?

ron hlavinka
Guest
0
ron hlavinka
July 24, 2013 2:29 pm

He’s not going to ‘do’ his ‘dd’; he’s going to ‘due’ his dd

hannibal
Member
0
hannibal
July 29, 2013 4:42 pm

Is yours a humorous remark or a sarcastic one.?

who noze
Guest
0
July 24, 2013 1:08 pm

dsont overlook adcare nursing home accumulator [[adk

Jim Wood
Guest
0
Jim Wood
July 24, 2013 1:45 pm

I love the paragraph that says: “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.” We should sure call them “onerous regulations” if they lead to better equipment, better staff, and better care! — I know nothing about MPW, but it sounds interesting.

Chuck
Guest
0
Chuck
July 24, 2013 2:46 pm
I am a long time Board member for a large suburban Hospital and in my opinion MPW has a questionable strategy. Virtually all hospitals are in the process of forming something called an ACO (Accountable Care Organization). This new organization will not use today’s fee for service model but will get a certain dollar amount from insurers both private and governmental for each “covered person” in the group. Yes Hospitals will have to do better on various quality measures or face possible fines but this model will encourage providers to lower admissions to hospitals in favor of preventative care. As… Read more »
Alan Harris
Guest
0
Alan Harris
July 25, 2013 1:17 pm

Does it really matter if they only admit 2 people if they have leased the whole building? Or do they/can they lease it back one ward at a time ? That would be a serious problem.

ChuckM
Guest
0
ChuckM
July 24, 2013 3:52 pm

I have held NHI for many years. It has a better track record than MPW. It looks like MPW is a little cheaper now and may grow faster.

Dennis
Irregular
32
July 24, 2013 5:51 pm
I will accept the fact of more consolidation within HC REITS. Interest rates somewhat steady. Therefore, I have done my dd and am a buyer. Article for your irregulars review. Billions Pour Into Healthcare REITs Submitted by Derek J. Doke CCIM on Sat, 05/25/2013 – 13:35 Reprint: Healthcare Real Estate Insights; Author: Murray W. Wolf; Date: May 22, 2013 It looks as if the good run for healthcare-focused real estate investment trusts is not coming to an end anytime soon. As of April 12, all of the US equity REITs – not just healthcare – had raised $18.3 billion in… Read more »
Virginia Scanlan
Guest
0
Virginia Scanlan
July 27, 2013 10:43 am
I would not get involved in this sector. Repeatedly, over the past three years, governments have made decisions that have devastated hospitals and doctors practices by cutting reimbursement rates and creating an avalanche of regulations, regardless of the consequences. Reimbursement rates will continue to be cut regardless of the CPI. Further, the ACA calls for quasi-governmental regional bodies to determine when and if health care facilities can be added. Neither government bureaucrats nor hospital administrators have had any experience micro-managing 19% of the economy. In our area, a major hospital finds itself in the unhappy predicament of being unable to… Read more »
patan
Member
0
patan
July 27, 2013 11:38 am

Hospitals for profit r acquiring medical practices and out pt facilities and r doing well

terrimerry
Member
5
terrimerry
July 27, 2013 5:06 pm
And then there’s this article: Avoid REITS with Long-Term Bond-Like Leases ” Analyst (VTR) (MPW) (EPR) (LXP) 11:56 AM ET, 06/13/2013 – Street Insider With bond yields rising, investors are increasingly interested in how equities will response to expectations of Fed tapering. Commenting, Keybanc analyst Jordan Sadler note that Fed stimulus appears to have reached an inflection point, and accordingly he shifted sector weighting recommendations for REITS toward the shorter term lease sectors and away from sectors with longer term, bond-like leases. “We recommend investors overweight hotels, self storage and industrial REITs, and underweight health care and triple net REITs,”… Read more »
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