e looked in some detail at the two “Landlord Nation” stocks pitched by Monthly Money Flows yesterday, and today we dig into three other ideas that are hinted at in that ad as investments which will benefit from the rise of the landlords.

If you missed the first bit, you can click here for that — the ad is for Jeff Zananini’s Monthly Money Flows from Wealthpress, which is pitched as a short-term trading service (why is he teasing these long-term compounder real estate companies, then? Your guess is as good as mine).

Still, whether it makes sense or not for a short-term trader, I do like the long-term compounders of the real estate world — they can offer some nice balance to a portfolio, even if they might suffer some if we enter a period when interest rates rise for a long time.

The three new stocks teased for us today are pitched as the “Hidden Goldmine,” the “Mega Builder” and the “Millionaire Maker” … we’ll ID them and talk about them a little bit in order, here’s our first batch of clues:

“The Hidden Goldmine: My #1 Land Resource In The World Right Now…

“… while rental companies stand to make a killing off of the “Landlord Nation”…

“So does this one, little-known, Florida based company….

“This company is sitting on over $17 billion dollars worth of land…

“The second largest landowner in the state of Florida.

“And when these real estate companies continue to build more and more complexes….

“They’re going to have to purchase the land.”

OK, so again we’re trying to have it both ways… rates are so high that nobody will be able to buy a house, so they’ll have to rent, which is bad for the companies that have huge tracts of land to sell… but maybe the landlords will swoop in and buy that land instead? A bit of a stretch, since the land prices would presumably be much lower in that scenario than they were in our recent home-buying bull market… but let’s continue…

“… right now… As we’re sharing this broadcast, it’s trading for a massive discount…

“Just $39 per share.

“According to Simply Wall Street, this stock is “trading at 71% below… its fair value”

“And if it returns to its April highs, which I firmly believe could happen…

“Well, investors could nearly double their investment… Even in this dreadful economy.”

And he highlights that “win both ways” notion, too…

“If my analysis is correct… Apartment companies will need the land…

“But, if for some reason my analysis is wrong… And the Fed clips rates, sending the housing market soaring again…

“Well… Because of the 5.5 million shortage of houses… then Home builders will need the land too! …

“In their quarterly update… They announced they’re actively partnering up with not one… not two… but EIGHTEEN homebuilders in Florida.

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“And insiders at the company are banking on this stock going gangbusters as company executives have a whopping $66 million of their own money invested in shares…”

So who’s that? This is, as you might have guessed, good ol’ St. Joe (JOE), a forestry-company-turned-real-estate-developer which owns a huge chunk (about 170,000 acres) of Florida, mostly in the panhandle.

A lot of that Florida land is not going to be prime real estate anytime soon, of course, it’s rural woodlands, but they have been gradually building up planned communities and towns to draw more people to this part of Florida, increasing demand for building lots. They even built out an airport a decade or so ago, and that area, mostly between Panama City and Destin, is certainly growing now.

Things had been pretty steady for several years going into the pandemic, but the boom in demand for new homes in 2020 and 2021 sent their land sales soaring, dramatically growing the business and beefing up their profit margins. I don’t know whether or not that continues in the next year or two, certainly migration into Florida is still strong and there’s a network effect in the newish resort areas of northwest Florida — the more homes built there, the more businesses come, the more attractive it looks, the more people want to build there. They are working with 18 homebuilders on some large communities, they have built out more hotel capacity and more country club-type operations for the people in those communities, and the commercial leasing and sales are also improving as the population grows.

You can see the St. Joe plan in their presentations to their Annual Meeting back in May — they’d like to double their annual home lot sales from about 1,000 this year to 2,000 by 2024, and that’s the big driver… but yes, they’re also building out some apartment communities and senior living developments and commercial centers, mostly in partnership with other companies.

What happens if everyone has to go back to work in New York and the “work from home at the beach” trend really dies? What happens if mortgage rates depress the sales of those homebuilding lots? I dunno — that’s obviously the worry expressed by JOE’s drop from $60 to $35 as interest rates have risen, but perhaps the fall has been too sharp. To some degree the past couple years for JOE mirror the rise and fall in the last housing bubble, and the stock took a long time to recover from that…

… but as an operating business, it is certainly getting better as the communities where they build and own land are growing larger and more valuable. The stock tripled during the “work from home” rush to the beaches, and it may well be that they have to give up some more to get back to a rational valuation if the value of home lots falls under the pressure of rising mortgage rates, but it’s beginning to look a little more reasonable again. JOE doesn’t really have any analyst coverage, but they are profitable and have probably built up enough of a steady business to remain profitable as long as the long trend of migration to Florida stays with us.

I have trouble valuing the huge tracts of land that might be developed over the decades to come, which is part of the reason why I’ve never bought St. Joe or some of the other big “land bank” stocks like Howard Hughes (HHC), but that huge inventory does at least give them some potential for future growth — they’re selling the best stuff now, the housing lots close to the ocean and to existing developments, and that will eventually run out, but some day, perhaps, the undeveloped land holdings that we mostly ignore today will become valuable, too.

Next?

“The Mega-Builder: One Stable Company That Could Benefit Regardless

“A world-famous builder who has been cranking out record revenue numbers… One after the other…

“As a matter of fact… From the bottom of the Covid crash till the beginning of 2022…

“This stock has outperformed Amazon… Microsoft… Facebook and hundreds of other headline-making businesses.”

And yes, he thinks this is a “win both ways” idea, too:

“I believe this stock could benefit from Landlord Nation regardless of which way things shake out…

“This isn’t some volatile startup. This isn’t some high-debt company.

“This steady-earning stock has been around since 1954…

“And as one of the leading builders in the United States…

“I believe as rental expansions continue, this stock will be able to benefit greatly – as their services will be much needed along the way.”

So that’s an argument that even though this is a home builder, they’ll benefit from the fact that people wont’ be able to buy homes. Presumably because landlords will keep buying the homes? More from the ad:

“This company is already miles ahead on the rush to rentals…

“Just over this past year, they formed a $4 billion dollar single-family rental business which controls over 300,000 rental homes nationwide.”

Thinkolator sez that’s Lennar (LEN), which is one of the largest homebuilders but has also been one of the worst performers among the major homebuilding companies over the past 20 years — here’s a comparison of a few of the total return for big competitors NVR (NVR), Pulte (PHM), Toll Brothers (TOL) and D.R. Horton (DHI) — that’s LEN down there at the bottom, in purple:

No surprise, given that chart, but they’ve also trailed in terms of free cash flow, earnings per share growth, and return on equity. Maybe they’ll go from worst to first, and perhaps their move into the rental business last year will give them a boost, but after a few minutes researching the company, it’s not looking like Lennar would be my pick as a long term investment. There would have to be something appealing about them that I haven’t seen yet — if you know what it is, feel free to let us all know with a comment below.

I own Dream Finders Homes (DFH) in this sector, which has also been a poor performer this year, but I own that fast-growing upstart largely because I think they’re doing a better job than anyone else of emulating NVR (NVR), which has been the most profitable homebuilder for decades, mostly because of their discipline in being “asset light” and not buying up land during boom times. Were I a more cautious guy, I would just buy NVR — and perhaps I still will someday, if the prices keep falling.

All the homebuilders have fallen hard, demand for housing is still extremely high, thanks to 15 years of under-building after the last housing bubble burst, and all the homebuilders look cheap. Sometimes buying the cheapest house in the cheapest neighborhood works out, but in this case I’d say that the best house in the cheap neighborhood is more appealing to me — Lennar trades at a PE of about 5, so it could certainly burst higher if things go well and the home-buying market stabilizes after this reset in mortgage rates, but NVR trades at a PE of 9 and is, I think, a much better company. You can make your own call on that.

One more…

“I want to hand over one last stock. This one is one of my all time favorite companies.

“Based in Boston, Massachusetts… This stock could have made a lot of investors verified millionaires….

“Someone who put just an initial stake of $2,320 into this company back in October of 2002…

“They’d be sitting on $1 million today.

“… this powerhouse really did earn investors 43,120% returns over that timeframe.”

OK, that’s just investing pornography — anyone can find the best past performers and inspire a little lust. What’s the story now, and why would this company benefit from this “landlord nation” business?

“As communities grow and expand, this company is a necessity for infrastructure…

“I’m talking about basic things like cell towers, broadcast communication stations, you name it….

“This company grossed $9.3 billion just last year alone…

“Nearly a 50% growth over the last four years.

“And as rental communities expand, so will the need for this essential company.

“As a result, analysts are predicting that this stock could outperform the entire industry by a factor of 5X over the next three years…”

I guess that’s probably true, expanding communities need more telecom infrastructure… though really, it’s not “landlord nation” that builds new towns and exurbs, it’s homeownership as people move further out into the exurbs so they can own their own home. At least that’s historically been one of the underlying forces for expanding metro areas, where most people live, perhaps those societal trends will change.

They also provide a chart of the extreme long-term returns from this “Millionaire Maker,” and that chart looks exactly like the chart of American Tower (AMT), which did indeed have $9.3 billion in revenues in 2021, and which is involved with critical infrastructure that supports the expansion of new communities (they own primarily cell phone towers and data centers). So that’s our answer.

The history of AMT also provides a reminder of the stupendous power of long holding periods — AMT actually got cut in half early in October of 2002, and that means the price you paid had a big impact over the long term. If you bought shares on October 1, 2002, then your total return as of today would be about 19,000% (pretty spectacular, with the S&P 500 returning only about 570% during that time period)… but yes, if you were lucky enough to buy at the bottom, on October 9, and hold on until today, your total return today would be that teased 43,000%.

Holding for a long time matters, with these steady compounders. And the price you pay matters.

American Tower (AMT) is still benefitting from the steady rollout of 5G services, and from its growing exposure to data centers after they bought CoreSite last year (the 5G “story” probably peaked as an investor theme in 2019, but the actual buildout of new services globally is ongoing, and won’t be done before the excitement about whatever “6G” might be is upon us).

The stock is currently quite beloved as the “flight to safety” crowd has kept interest high in AMT (and it’s competitors, especially Crown Castle (CCI), so these day’s trading at pretty close to the maximum price I’d want to pay, about 25X their adjusted funds from operations (AFFO), and it does not typically grow fast enough that you have to rush into a position… if you wait around, there are typically down days every couple years when AMT gets more attractively valued.

What’s going to happen in the near term, as rates rise (assuming that trend continues)? They will suffer a little bit from rising borrowing rates, since they carry a lot of debt, but they also own irreplaceable infrastructure assets around the world and should be able to gradually raise their lease rates to absorb the borrowing cost. This is one of the largest Real Estate Investment Trusts (REITs) in the world, but it is also very much a “growth REIT” — you don’t buy it for current income, you buy it for long-term compounding and dividend growth. They do pay a solid dividend, the yield is in the 2-2.5% neighborhood right now, and that dividend does get raised every single quarter, so they are keeping up with inflation (dividend growth has generally been in the 15% neighborhood for years), but this isn’t ever likely to be a “high yield” investment.

So, again, no real direct connection to the fact that home-buying is slowing down and more people may have to rent until home prices and mortgage rates normalize… but if you want to invest in business that let you be a landlord, these kinds of “digital infrastructure” assets have been great wealth builders in the past. I imagine that will continue, but they’re also much more well-known than they were in 2002, and American Tower is not cheap… so, as I say pretty regularly when considering an investment, the more you pay, the more patient you have to be.

That’s what I think when it comes to my money, but it’s not my money we’re talking about here — for your money, where do you want to invest to benefit from this “landlord nation” idea? Think it’s silly, and we’ll be back to a housing boom and adjust to higher mortgage rates next year? Or maybe that the Fed will have to actually crush the economy with double digit rates and make all income investments suffer? Have favorite ways to play real estate income these days that you’d like to share? Just use our friendly little comment box below… thanks for reading!

Disclosure: of the companies mentioned above, I own shares of and/or call options on Amazon, American Tower, Crown Castle, Dream Finders Homes, and PulteGroup. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.