by Travis Johnson, Stock Gumshoe | January 13, 2023 4:36 pm
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Source URL: https://www.stockgumshoe.com/2023/01/friday-file-momentum-value-picks-a-watchlist-buy-and-some-risk-reduction/
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Wowza! That was a big one. Thanks for your IIPR ponderings – very thorough.
I sold out of my IIPR position a while back for an OK pofit. I no longer have any pot related stocks. I have no confidence for gains in this market area.
Agree! A super long one. Thank you.
Thanks Travis, as you mention keysight and the lock box what are your latest thoughts on inTEST (INTT)? I have been tracking it since you added it and I know you previously mentioned adding it into the main portfolio if it dropped low enough.
I already own keysight (which has been a great steady stock) but was initially wary about having two companies in the same business. However re-reading your initial report i decided to pull the trigger in October when it dipped to roughly $7 but it just missed my buy limit and now it has inevitably doubled in price.
I can’t seem to find any specific news that explains the rise though, is it just market sentiment? or has something fundamental changed?
Is there still a reasonable buy price that you are looking at for the main portfolio?
Will have to dig into the latest INTT filings again and see what’s happening. Doesn’t take much attention to drive the share price up, since they’re so small, but I don’t think anything meaningful has changed since the last time I checked. Their connection to semiconductors means they’re seen as pretty cyclical, so they’re riding those same sentiment waves as a lot of much larger and more expensive growth stocks.
Can anyone help me find cusip numbers or other identifiers for the Trulieve and Cureleaf bonds mentioned?
Trulieve’s Oct. 2026 bond with an 8% coupon is at CUSIP 89788CAD6
Curaleaf’s Dec. 2026 8% coupon CUSIP is 23126MAA0
Many brokers will have similar data, but I think the best free source of bond info is FINRA (https://finra-markets.morningstar.com/BondCenter/Default.jsp)
If you’re looking at defense-stocks you should definitely have a closer look at the lesser known Kongsberg Gruppen (KOG at the Oslo stock-exchange). Amazing company that’s highly diversified into numerous areas. Offers a good risk-reward IMO.
New one for me, thanks.
You’re welcome, Travis! If I would put all my money into one stock for the long run – this would be it 😉
Trade Note
Well, that’s what I was afraid of… the press release headline didn’t include the word “default”, but Innovative Industrial Properties (IIPR) announced late yesterday (press release here) that rent payments are starting to fall off… and the stock is falling sharply.
The bad news is pretty widespread — they have collected only 94% of their rent for the operating portfolio for December, and 92% so far for January, and that includes applying part of the security deposit to cover rent for at least one tenant. They have made lease amendments to tighten terms and also defer some rent for three properties, but there are also three other properties (operated by Parallel in PA, Skymint in MI and Vertical in CA) where the tenant is officially in default (though in the case of Skymint and Parallel, those multi-location tenants are continuing to pay rent on their other properties).
This is quite a bit worse than I expected… I thought we’d start to get a trickle of troubled tenants trying to renegotiate their rent, or maybe one location failing to make their January rent, but now we’re learning that it was also bad in December and they didn’t notify investors at the time since presumably nobody was technically in default yet… but now in January, this is more than 6% of IIPR’s properties (by their cost) in default and several others clearly in trouble (if you’re using your security deposit to cover rent, the next bit of news is not likely to be good), and that’s not counting the properties that they separated out as “construction in progress” projects after Kings Garden defaulted on those (one of those is in negotiations with a potential tenant, the other is actively being shopped to non-cannabis tenants). The fact that at least five different tenants are defaulting or renegotiating or late in rent payment, including at least one large multi-state operator (Parallel), gives a pretty strong clue that the industry is, as we feared, going through a really rough patch in at least several states.
IIPR continues to make new sale-leaseback deals, though at a slow pace at the moment, and clearly they’re going to need more capital if they want to keep growing… with this news, that capital will be substantially more expensive (shares sold at a higher dividend yield, or debt at a higher interest rate). I don’t know whether this is the worst of it, or just the first snowball that turns into an avalanche, but it definitely could get much worse.
I already sold my Innovative Industrial Properties (IIPR) position, as I told you last week… but given this indication that things in the business are even more challenging than I thought, I’m also clearing out my stake in the marijuana mortgage REIT AFC Gamma (AFCG). That leaves the Real Money Portfolio with a sale at $15.85, and a loss on that position of about 10% — the dividend yield is still high, and they have still not indicated that any of their major borrowers are in default (and they have a different risk profile than IIPR, so it’s possible they could get through a soft patch a little more cleanly), but given how pessimistic I am about the health of the marijuana industry in general right now, and how surprisingly abrupt this news of several defaults and other challenges was from industry leader IIPR, it doesn’t make sense to have a meaningful amount of capital at risk in this business… even in the relatively less risky financiers (less risky than the marijuana operators, that is).
The IIPR bonds have fallen a little bit over the last week, but last traded around $880 (per $1,000 of par value)… which isn’t enough of a discount to par to entice me just yet, even though the bonds are dramatically safer than the stock (because of the low debt levels). And, of course, they could also issue more senior debt if that’s what’s required to raise capital in the future, which would dilute the collateral on existing bonds… though they’re still very under-levered for a REIT, so I’d say they’re still quite safe, just not yielding enough to make me tempted now.
The wholesale end of the MJ market has completely collapsed. Big operations have set up and flooded the market with sub-par product in every state that has legalized recreational. Its all all about quantity and crop turn over. There are exceptions, that are run by growers that understand it is not all about THC content but the flavor and turpine profile. who want to smoke something that tastes like dirt. Until it is legalized and regulated by the federal govnment i hope the good ones can survive. Will get off the soapbox now
Things do seem awfully broken at the moment, will be interesting to see how it shakes out… but I wouldn’t want to count on getting any agreement on Federal legalization in the next two years.
Fear of fentanyl pollution in MJ is supposedly causing people to seek safety in dispensary grade products. All I ever hoped for was decriminalization. Things have indeed gotten out of control and seem to be headed in the wrong direction.