TSLA

Tesla, Inc.

697.99
USD
-5.00%
697.99
USD
-5.00%
620.46 1243.49
52 weeks
52 weeks

Mkt Cap 700.97B

Shares Out 1.00B

Chat
Send me real-time posts from this site at my email

Cathie Wood Warns Of A Global Recession: Our Top Picks

Cathie Wood is a star stock-picker and founder of ARK Invest (ARKK), which manages tens of billion and invests mainly in innovative tech companies like Tesla (TSLA), Teladoc (TDOC) or even Coinbase (COIN). She became famous in 2020 after earning enormous returns to its investors during the pandemic. But more recently, her performance has been lackluster, leading a lot of investors to question her stock-picking abilities. In her defense, she is a thematic portfolio manager and her sector has sold off like rarely before. I think that we perhaps overhyped her in 2020, but also put too much blame on her today. After all, it isn't possible to time short-term market results and no one is immune to a market crash. But regardless of what you think of her stock picks, it is worth following what she has to say about the economy because she has access to some of the best resources in the investment field. When you manage so much capital, you just have access to better information than the average Joe. And so what is she saying right now? She thinks that we could be in a global recession. She notes that there is worrisome data out of China and Europe that could point to the early stages of a downturn. The latest GDP reading here in the US confirms this as it was down 1.4% in the first quarter, far short from the expectations. Of course, there are many good reasons to think that we are in a recession. The high inflation, supply chain issues, lingering pandemic, and enormous geopolitical uncertainty are all weighing down on the growth. This is especially alarming when you consider that we are just beginning to hike rates and we are already talking about a recession. The Fed recently hiked rates by 50 basis points, the most in 22 years, but even then, the Fed's rate is still just in the 0.75-1% range. We are facing a dilemma as we need to essentially choose between suffering high inflation or a recession. Hiking rates substantially would likely cool down the inflationary pressures, but it would also put us right into a recession. Jerome Powell recently confirmed this as he said that he can't guarantee a "soft landing" as they retake control of inflation. It may seem like we are set for more pain either way and that's why the market has recently become so volatile. How should investors adjust their portfolio for this unique environment? Cathie Wood would argue that now is time to invest in innovative tech companies that can grow, regardless of the inflation or a recession. I agree that there are some opportunities in her space after the recent sell-off. However, I continue to allocate the majority of my capital into Real Estate Investment Trusts, or REITs in short (VNQ), because many of them offer exactly what you need in today's environment: inflation-protection and recession-resilience. In what follows, I highlight two top picks that I am currently accumulating: For most of last year, apartment REITs were very popular investments and it is easy to understand why. They offer inflation-protection and recession-resistance because everyone needs a roof over their head and rents are growing the fastest in 15 years. But that's not all. What makes these REITs even more compelling is that they have been able to secure fixed-rate debt at very low rates and with long maturities. This affords additional protection against inflation and rising rates because the debt is now being inflated away even as the value of their assets continue to rise. Moreover, the rising interest rates also benefit these REITs because homeownership is becoming less affordable, which increases the demand for apartments, all while new development projects become less lucrative, which reduces the new supply. For these reasons, we can expect these REITs to enjoy strong fundamentals in the coming years and this is in part thanks to the high inflation and rising interest rates. Despite that, today, some apartment REITs are surprisingly cheap. One of my favorite examples is BSR REIT (OTCPK:BSRTF/HOM.U). I prefer BSR to most other large apartment REITs like Equity Residential (EQR) or Essex (ESS) because it owns mainly properties in rapidly growing Texan cities like Austin, Houston, and Dallas. A lot of people and businesses are today moving there to lower their cost of living and taxes, and I don't expect this trend to end anytime soon. Last year, its portfolio gained substantial value on the back of 20%+ rent hikes and cap rate compression. Its net asset value rose by 61%, reaching almost $20 per share. That's in a single year! The growth likely won't be as strong in 2022, but it will continue nonetheless because BSR still hasn't bumped all of its leases. At first, the market priced BSR at $22 per share, which made sense given its strong prospects, but as the market sold off, BSR dropped back down to $16.5 per share. That's a 15% discount to NAV for highly desirable, inflation- and recession-resistant assets. I believe that as BSR reports another few quarters of rapid rent growth, its NAV will reach $22-25 by the end of the year, and this will lead to 30-50% upside from today's share price. While you wait, you also earn a monthly 3.2% dividend yield that's growing rapidly. Is BSR the most rewarding REIT in our portfolio? No, it isn't. But it provides valuable inflation and recession protection and it is now the cheapest it has been in a while. VICI Properties is the leading casino REIT and while this may surprise you, it is one of the best inflation and recession hedges in today's market. Many mistakenly think that casinos are highly cyclical, but in reality, they really aren't. Just like many other sins, gambling is quite resilient to cycles because it provides an escape for people: But VICI is especially recession-resistant because it is a triple-net landlord. What this means is that it leases its properties on a long-term basis to tenants who are responsible for all property expenses, including even the maintenance. The leases are 15+ years long and the rent is pre-set for this entire period with automatic annual rent hikes. Therefore, whether we go into a recession or not, VICI can expect to earn steady cash flow from its rent checks. If you are still suspicious, consider that VICI did not miss a single rent payment during the pandemic and was able to hike its dividend by 11% in 2020 and another 9% in 2021. The pandemic was the worst possible crisis for VICI and not even that could disrupt its earnings. Moreover, VICI also has CPI adjustments in its leases that provide additional protection in case of elevated inflation. For example, its Caesars (CZR) lease, which represents over 40% of its rent roll, will escalate at the greater of 2% or the change in CPI (with no cap on the change in CPI), making it an inflation-protected revenue stream. Some of its other leases include caps on the change in CPI, but the point here is that VICI can expect rapid rent growth during times of inflation, and since it is not responsible for any property expenses, this is real growth that falls straight to the bottom line. You would expect such a rapidly growing, inflation and recession-resistant REIT to trade at a high valuation in today's environment, but because it is falsely perceived to be a "risky casino investment", it is currently priced at just 12.5x FFO and it offers a 5.3% dividend yield that's well covered. From the yield and growth alone, you can expect to earn ~12% annual returns, and as VICI returns to fair value, I expect another 30% upside from the current share price. What's the catalyst? VICI is expected to be added to the S&P 500 (SPY) in the near term. The main challenge for investors today is that they need to find investments that provide protection against both, a recession and inflation. The Fed is forced to hike rates to get the inflation back under control, but hiking rates will likely also put us in a recession. At High Yield Landlord, we believe that inflation- and recession-resistant REITs like BSR and VICI offer the best risk-to-reward in today's market and this is where we invest most of our capital at the moment. If you want full access to our Portfolio and all our current Top Picks, feel free to join us for a 2-week free trial at High Yield Investor. We are the fastest-growing and best-rated stock-picking service on Seeking Alpha with 2,500+ members on board and a perfect 5/5 rating from 400+ reviews: You won't be charged a penny during the free trial, so you have nothing to lose and everything to gain. This article was written by Jussi Askola is a former private equity real estate investor with experience working for a +$250 million investment firm in Dallas, Texas; and performing property acquisition in Germany. Today, he is the author of "High Yield Landlord” - the #1 ranked real estate service on Seeking Alpha. Join us for a 2-week free trial and get access to all my highest conviction investment ideas. Click here to learn more! Jussi is also the President of Leonberg Capital - a value-oriented investment boutique specializing in mispriced real estate securities often trading at high discounts to NAV and excessive yields. In addition to having passed all CFA exams, Jussi holds a BSc in Real Estate Finance from University Nürtingen-Geislingen (Germany) and a BSc in Property Management from University of South Wales (UK). He has authored award-winning academic papers on REIT investing, been featured on numerous financial media outlets, has over 50,000 followers on SeekingAlpha, and built relationships with many top REIT executives. DISCLAIMER: Jussi Askola is not a Registered Investment Advisor or Financial Planner. The information in his articles and his comments on SeekingAlpha.com or elsewhere is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions. High Yield Landlord is managed by Leonberg Capital. Disclosure: I/we have a beneficial long position in the shares of VICI; HOM.U either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue