I Just Found My Next Multi-Bagger Stock

Hey, welcome back subscribers to my world of stocks and welcome back to our newest miniseries where we hunt for the next big stock breakout opportunity across the broader market. I believe we are on episode five now of our search for beaten down stocks that investors currently hate but that I think could be big sleeper plays for the long term, maybe even multibaggers. Now, the only issue though is that in order to find that giant potential, well, you usually have to take on some huge risk, too, because a cheap stock is usually cheap for a very big reason. So, as always, make sure to do your own research and due diligence. But, if you are enjoying the series, then be sure to hit the like and hype buttons down below. So, that lets me know you'd like to see more of these episodes in the future. Now, so far in uh previous episodes for this series, we've mostly covered some exciting tech software plays across cyber security, enterprise software, fintech, and even AI cloud infrastructure. But for today's episode, well, we're actually going to pivot completely out of the software space and go with a company that I feel lays much of the physical foundation for the future of biio medicine. And that is the real estate biotech giant Alexandria Real Estate Equities, ticker symbol A or R. And here's exactly why I chose this REIT, the first one of the series, by the way. Now, first of all, if we just look at the real estate sector as a whole right now, the reality is that over the past few years, we've been dealing with some of the absolute worst macroeconomic conditions in all of modern history, really in my lifetime, as we've seen. Now, see, REITs really um rely very heavily on debt to fund their huge development pipelines and acquire new properties for future growth. But with all of the inflation that we've been dealing with post pandemic, well, the Feds kept interest rates much higher for longer to combat it. And that's a combination that almost always leads to REIT prices crashing into the ground. In fact, if we look at Alexandria's stock chart, well, you'll notice that by far the two biggest, most clearly defined crashes in their entire history happened during the '08 financial crisis and housing market crash, which spread into commercial real estate, too. And then more recently these past few years where it also lost close to 80% of its entire value from the top. Now back then during the 0809 crash banks refused to lend to corporations or even to each other and that sent the actual cost of credit and refinancing soaring through the roof which ended up crushing all of these debt heavy businesses that REITs are known for. Even though Alexandria themselves still had an incredibly strong tenant base with all their core business operations running smoothly and mostly intact, too. In fact, the company still reported positive rental growth and even grew their funds from operations year-over-year. Well, something similar is happening this time too, though, where high interest rates are suddenly making the borrowing costs for REITs much more expensive, and thus their growth through acquisition gets halted at a time when many biotechs are also choosing not to renew their contracts, which I'll explain further a little later in this video. But on top of that, higher rates also cause investors to rotate their money out of risky real estate over to bonds that carry more attractive yields and are generally considered to be safer investments, at least at the time. But for for any uh new investors that are looking at the stock price today, well, after all of this crashing, it's where I think the huge opportunity starts to present itself, even if there is higher risk that we'll discuss in just a second here. But for one, our stock is now essentially trading for around the same levels that it did during the Great Recession. That alone makes me feel pretty confident that I'm buying somewhere near the bottom here. And I'm not saying that it can't crash further, but in terms of risk versus reward potential, I kind of like the odds here. Number two, for a dividend investor like myself, well, the healthc care space can be one of the best to look at for um for finding some great value there. Uh just to be clear, I do also hold stock in direct pharma plays like Fizer and Bristol Myers Squib who also pay some great um yields right now. But I also think that diversifying away from only owning these pure plays can be a great move too. For example, drug makers often face public scrutiny. Their drugs lose patent protection and they even face risk of government regulation on drug pricing as well. All of which can make their futures very difficult to predict. But a REIT leader providing to these companies is a completely different story. Now see, making new drugs and treatments can be super expensive to do and it's not an optional cost for these companies to run all of that R&D. They have to do it if they want to survive and be alive long term. Well, the result is that insane amounts of money gets poured into the healthcare sector. And that non-stop research and development, well, it needs to be performed in highly specialized physical locations, of which Alexandria owns a ton of those exact properties that they then lease out to these giant companies. And the mode here is very strong, too, cuz over the years, they've focused on developing and operating what they call collaborative mega campus ecosystems. Essentially what these are, it's like these really big clusters of research facilities that are purpose-built for drug discovery and research. And they're centered around the most popular cities in the country, specifically for tech and science. It's where everyone goes for it, including Boston, San Francisco Bay Area, and surrounding Silicon Valley, New York, San Diego, Seattle, Maryland, and the research triangle in North Carolina. Because these facilities require huge power grids, advanced HVAC systems for sterilized rooms, and heavyduty structural support for all the multi-, you know, millionoll lab equipment, sometimes billions. Well, it creates an incredibly high barrier to entry. One, by the way, that can't really be disrupted by artificial intelligence either. Like one of the things that I've been taking more seriously um recently when I invest in stocks is I try to think is this a a business that can be easily replaced by the AI revolution because I've seen so many stocks crash for that reason. It's why I love real estate stocks so much right now because no matter how advanced the AI software becomes, it's never going to be something that can just go out there and replace realworld physical locations. All of this is exactly why Alexandria's tenant list is one of the strongest that I've ever seen with some of the biggest Fortune 500 companies and highest tier biotech names too including companies like Fizer, Eli Liy, Bristol Meyers, Madna, Novartis, uh Merc and even the government and uh giant tech companies that are branching into biosciences too including even Google which is pretty impressive cuz these are some of the highest quality tenants that you could ever ask for that are sitting on mountains of cash and are not likely to default ever on their rent. Plus, to make things even better, especially for investors, the actual structure of their lease agreements, the vast majority of them, things like over 90% of them at this point, um are what we call triple net leases, which require the tenants themselves to cover most of the property taxes, building insurance, utilities, repairs, common area expenses, and all the regular maintenance. Or in other words, Alexandria's total cost of doing business is actually super low once their properties are already up and running. The only problem, however, is simply the environment that they're stuck in right now, which is absolutely terrible. See, during the pandemic, demand for these type of um buildings that Alexandria owns uh was through through the roof. And Alexandria themselves expanded greatly to try to meet that demand. In fact, they greatly overexpanded like many others did, which led to a huge over supply in the market. Something that we've been seeing across a lot of real estate, commercial real estate recently. And uh once the pandemic ended and all we were left with was really just you know crippling inflation, high interest rates, all these biotechs started to struggle greatly which you can see directly in um like the stock price of Fizer for example who was redhot during the pandemic and then came crashing back down to the ground. Well in fact as a whole life sciences demand crashed by more than 60% during that time. As a result, Alexandria is now in the process of having to sell they're selling um their worst performing properties totaling actually several billions of dollars worth, which you know on one hand helps greatly to service their debt during a high interest rate environment. You need to have a lot of cash on hand, but on the other it also greatly cuts into their rental income. In fact, analysts now project their funds from operations to correct back down to even pre2020 levels before they can start growing again. And and they do expect them to grow again, but it's going to take some time. Well, the good news though is that Alexandria is now refocusing their portfolio around their best performing mega campuses that are absolute cash cow properties with big retention because of how difficult it is for these giant companies to relocate all the millions or again even billions of dollars worth of equipment that they're, you know, that they've already set up there in their buildings. And because management decided to cut their dividend in half last year, it's like the end of last year um to support their balance sheet during this high interest rate environment. Well, they're positioning themselves with a much leaner financial profile going forward. I know it's difficult to envision right now, but I really do think that this is setting up for a big um rebound kind of potential play longer term. This is an incredibly useful business here that I don't ever see going away or not being needed. Yet, their stock price trades like the company has headed straight for bankruptcy. Again, having lost already a mind-blowing around 80% of its entire value from the top, essentially wiping away multiple decades of progress and gains even though their financials today are actually still way stronger and higher than they were, you know, preand like around the end basically pre- pandemic. their their stock price is trading much lower, but their financials are actually much higher regardless of like what years you want to compare. And because of the dividend cut, um their payout ratio is now sitting at just less than 50%. Yet their yield is still among the highest levels that they've ever paid. Especially like if you just exclude the pre-cut levels right when it had soared, it's sitting now at still around 6%, which is a very good dividend. It's also an insanely cheap valuation for the stock itself. is trading more than 40% lower than the sector median based on forward funds from operations. In other words, we would consider this an absolute steal for value income investors, you know, during any other time. But because of the macro concerns right now, everyone is kind, you know, running for the hills and not really willing to wait out the storm while the company tries to rebuild and has to rebuild. But there, you know, investors don't really want to wait for that. I mean, even before the pandemic ever even happened, again, this was a stock that traded around three times higher than where it sits today. So, how does that make any sense? I think it should at least be back to those same levels, but it's actually much, much lower, much cheaper. Again, I can't say with full certainty what the future holds. I'm not a fortune teller. Don't claim to be one. But if I'm forced to look for beaten down leaders that I think have, you know, kind of the the perfect setup and opportunity for a big rebound long term, this would for sure be near the top of the list. But, uh, hey, what do you guys think? I'd love to hear your thoughts down below. Do you agree with my assessment or do you think I'm crazy for taking a chance on a crashing read stock like this that the broader market seems to, you know, absolutely hate at the moment? I'd love to hear your thoughts down in the comments and let me know if you agree or disagree with anything I said. Um, but if you didn't like this one, then don't worry because I already have episode six lined up with another exciting beaten down sleeper stock to keep this new miniseries going. So, make sure you subscribe for that. And by the way, if you have any suggestions for one of these, maybe for a future episode, let me know down below which stock you really like right now that has this kind of potential, at least in your opinion, and let me know why. And maybe I'll choose it for a future video. Maybe I'll make a video about it. But, uh, hey, either way, I just hope that uh, you enjoyed the video. I hope you're all doing well and thank you so much for stopping by and I'll catch you guys in the next one. All right, take care my friends. Bye-bye.