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DATA CENTER REITs
Last week, we mentioned that Colony Capital ($CLNY) is selling 90% of its holdings in traditional real estate assets like hotels and warehouses and is pivoting to data centers, cell towers, and fiber optic networks.
Here are a few REITs/companies we will be watching in this space.
But first, a little context…
A market poised for growth📈
Data centers are the backbone of the internet. They store, communicate, and transport the information we produce every day. The more data we create, the more vital our data centers become, per CB Insights.
Read CB Insights full report on the future of data centers.
Data center REITs have crushed the S&P 500 over a ten-year period.
🔥We like this sector for two reasons🔥
The weight of evidence suggests data centers will continue to grow for the next few decades; relative to other real estate sectors.
Their charts are in uptrends.
Which means — Buy the dips! Assuming your time frame is 5-10 years+.
Also: In our view, the risk/reward does not favor new positions at these levels. Even though we like all three REITs long-term, we would wait for a dip before putting on new positions😉
Equinix ($EQIX) ◾ Data centers ◾ $49 billion market cap ◾ Dividend yield: 2.59%
What’s their chart telling us?
The trend is higher. We would look for demand first at $360, then $320 (blue arrows).
Company homepage; Q2 2019 earnings presentation; 2018 annual report and 10-K. The future of data centers (HIGHLY RECOMMENDED); Financial statements and valuation metrics.
CoreSite Realty ($COR) ◾ Data Centers ◾ $4.5 billion market cap ◾ Dividend yield: 4.75%
The trend is higher. We would look for demand first at $90, then $70 (blue arrows).
Company homepage; Q2 financial highlights; Q2 investor presentation; 2018 10-K.
CyrusOne ($CONE) ◾ Data centers ◾ $8.95 billion market cap ◾ Dividend yield: 3.48%
The trend is higher. We would look for demand first at $65. And if that level breaks, we will take another look.
Company homepage; Q2 2019 earnings presentation; 2018 10-K.
As our digital life continues to expand, cell networks are getting crowded. This has resulted in poor reception, dropped calls, and longer download times for media like music and video👇
When at scale, the jump to 5G will be jarring (in a good way)
For a complete view of 5G’s potential, watch the video below
American Tower ($AMT) ◾ Wireless infrastructure (cell towers) ◾ $98 billion market cap
American Tower was spun from CBS/Viacom in 1998. Since then, it has built a dominant position in wireless infrastructure. And is in prime position to capture value when 5G technology is deployed.
We’ll dive deeper into American Tower in our next issue. Subscribe below to get it delivered to your inbox.
COMPANIES TO WATCH
Nordstrom ($JWN) ◾ Department store ◾ $5.22 billion market cap ◾ Dividend yield: 4.42%
👆5-year comparison between Nordstrom, Macy’s, and the S&P 500. (click chart to enlarge)
They did everything right: They invested heavily in e-commerce, didn’t open too many stores, and have been quick to experiment with new types of shopping formats, including stores that don’t carry any clothes per the WSJ.
Yet, like other department stores, their financial and stock performance suffered. With YTD performance clocking in at (26%).
We have no idea if Nordstrom or any other legacy department store can pull-off a comeback. We think there’s a fair chance one of them will.
But without knowing the future, all we can rely on is price. Which is what we’re doing here.
What’s their chart telling us?
The trend is down. Price is at a level that has attracted buyers going back to 2005. If $25 breaks, the next level down is $20, followed by $10.
Entry: Between 25.50-$30
Stop: Weekly close under $24.80
Reward/Risk: 7.26 (126% upside vs. 17% downside) | You make $7.26 for every $1 dollar risked.
⚡Warning⚡The weight of evidence suggests department stores are in secular decline. Nordstrom and Macy’s could be (probably are) value traps. Think carefully if the potential upside justifies your tolerance for risk and volatility.
ETFs that include Nordstrom:
Three slides from their 2018 investor presentation (HIGHLY RECOMMENDED):
Why do customers choose Nordstrom over other options? This goes back to our article on jobs-to-be-done-theory.
They are growing their share of younger shoppers.
Nordstrom Rack, Nordstrom’s discount store, is the fastest-growing segment within the Nordstrom footprint.
View the whole presentation here.
Company homepage; Financial statements and valuation metrics; Q2 2019 earnings presentation; Recent 10-Q; 2018 annual report.
$NERD ◾ Esports ◾ $9.8 million AUM
This is a tiny ETF, but one that’s trying to take advantage of a secular trend: the growth of Esports.
Visit the ETF homepage.
From their investor deck:
We don’t know much about this market, but it’s one that interests us due to our childhood love of video games. We’ll keep you updated as we dig a little deeper😉
Thanks for reading, and have a great day!
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Nothing in this post is to serve as investment advice. It’s for informational purposes only. Always do your own research🤨