June 24, 2024

The Top 2 Enemies of Your Wealth

Tim Melvin

I am a news junkie.I always have been and always will be.

I blame it on Hunter Thompson, Walter Cronkite, and the Baltimore Orioles.

If you listen close enough... they reveal the top two enemies of your wealth.

You see, I grew up in the 1960s and 1970s, which, to say the least, were moderately turbulent times in the United States.

I have also been a rabid baseball fan since I was old enough to know what a baseball was. There was no ESPN in those days, so you had to catch the local news and hope that Vince Bagli at WBAL had some highlights of last night's game.

Cronkite was mandatory viewing for the news of the world in those days.

Reading Hunter Thompson in the mid-1970s opened my eyes to the fact that there was just a ghost of a chance the news got it wrong.

It seems that the people writing the news may have a bias or just bought whatever line the government in question was peddling that day.

Now, we can explore this topic in-depth and engage in a long discussion involving Nock, Mencken, Twain, Buckley, and a host of other outspoken critics of the press and government, but that does little to serve our purpose.

Let's talk about the two weapons used against you everyday to sabotage your own wealth.

It Works Every Single Time

Consider how much bias and distortion have slipped into the modern financial media and how the need for clicks and eyeballs is making it a lot more difficult for you to make money.

The easiest way to generate an activity that attracts advertisers is to appeal to either fear or greed.

The holy grail is to use fear to feed the greed.

"The world is going to collapse, but you can benefit from the global economy and misery by doing this right now. Click here for details."

Sound familiar?It works every time.

Fear and greed are used to rob you of your wealth.

Now we can do one of two things about the constant misdirection and predatory bias of the financial charlatans.

We can get mad. That is always fun. There is lots of hopping around, pointing fingers, yelling, and so on.

Probably a decent aerobic workout.

Not very productive or profitable, however.

Or we can exploit it.

When everybody knows something, it is usually wrong.

This is especially true in financial markets and media.

For the last year, the headlines have screamed about the pending disaster in real estate and banking.

This consensus view has pushed the price of many REITs and most banks dramatically lower.

While there are seeds of truth in these bearish statements, the truth is that conditions are nowhere near as bad as they might seem.

We will cover banks next time out, but in real life, the bulk of the problems are confined to office buildings in general and skyscrapers in particular.

While there are signs that the worst has passed for Class A office towers, that is not the type of real estate I want to talk about today.

More Money, No Problems

I want to talk about some REITs that have had no occupancy problems or difficulty collecting the rent.

They can refinance their debt and just pass the increased costs onto tenants with no problems.

Getty Realty (GTY) is a fantastic example of real estate that is unaffected by the doom-and-gloom headlines.

Getty Realty owns gas stations, car washes, auto-related service businesses like oil change and collision centers, and a few drive-thru restaurants.

All in all, Getty has 1,108 properties spread across 41 states and the District of Columbia. Its tenants are well-known chains like 7-Eleven, Jiffy Lube, Valvoline, and Circle K. 99.7% of the properties are currently occupied and paying rent.

Cash flow, net asset value, and dividends are all growing almost regardless of the economy and markets' performance.

The market cap is just $1.5 billion, and the enterprise value is only $2.23 billion.

The leases are all triple net; so the tenant pays all the pesky expenses like insurance, maintenance, and taxes. Getty Realty just collects checks, deducts expenses, and sends us the balance as dividends.

The yield is currently 6.65%.

This REIT has to be considered a takeover target, as the larger triple-net lease REITs are always looking for deals that will boost their asset base and cash flows.

Even without a deal, the stock is undervalued and should see a strong price increase in addition to the dividend. Not too long ago, the stock traded in the upper 30s, which would be closer to my estimate of the fair value of Getty Realty shares.

Easterly Government Properties (DEA) is another REIT that is probably not going to collapse as the headlines suggest, in spite of the fact that it owns office buildings.

First, Easterly mainly owns Class A office space, and most of those properties are performing well.

Second, Easterly only has one tenant, and that is the United States government and its various agencies.

When your tenant owns a legal printing press for currency, you can be pretty confident the rent will get paid.

Back in 2020, when it looked like the world would end, and only the government would pay rent, shares of Easterly soared in value. They have since fallen back into the sleepy, ignored corner of the REIT market and trade at a discount to my NAV calculation of more than 30%.

Most of the cash collected as rent is paid back out to us as dividends, and the shares are currently yielding 8.6%.

Officers and directors collectively own over 6.5 million shares of Easterly Government Properties, so there is plenty of skin in the game.

The headlines are constantly telling us that it is the end of the world for real estate.

It is not.

Patient, aggressive investors who acquire attractive assets that pay out large amounts of cash in dividends stand to reap massive gains when the market corrects, as it always does, the mistakes of the media and instant experts.

You can join the horde and follow the news.

You can agree and shake your fist and scream choice phrases and suggestions to the purveyors of the news.

Or you can exploit the bias of the news and use the inequality it creates to collect cash and book profits when reality reasserts itself.

It is an easy call.

Stay informed,

Tim Melvin
Yield & Growth Expert

P.S. Learn more about my favorite stock ideas right here. They're some of my very best to date. Get immediate access here now.

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