Note from Michael Salvatore, Editor, TradeSmith Daily: Real estate has burned a lot of folks in the past few years. The sector flew high on a once-in-a-century economic setup… then foundered so hard, the commercial side of it blew up a major bank in the process.
However, according to our stock-picking expert and former Wall Street dealmaker Jason Bodner, that’s changing. In light of the Fed’s recent interest rate cuts, big money is starting to flow back into the real estate sector.
Today, he’s going to show you how he’s so confident about that, and one standout stock to watch as the trend plays out… |
This Money Pit Is Making a Big Comeback By Jason Bodner, Editor, Quantum Edge Pro We all have unloved items lying around. Just staring at us from the corner of the closet or the back of the cabinet. I try not to hold onto things for too long and love a good purge, but some things are hard to get rid of. Maybe it’s your teenager’s once cherished teddy bear, those new shoes you had to have that are just a little too small, or the weekly bag of spinach you buy with full intention of adding it to your smoothie only for it to once again wilt and die. Unloved and unused things are everywhere. Even certain areas of the stock market go untouched by most investors. But when those investments are about to become loved, look out. In a recent Power Trends, I discussed how homebuilders are poised to explode due to a setup that mimics the post WWII Baby Boom. But as I thought over other potential implications to falling interest rates, another area screams opportunity. An area most investors left for dead… and for good reasons… until now. That unloved opportunity is Commercial REITs. If your reaction is – “Are you crazy?!” – then you see my point. REITs have largely been money pits for a while now. Massive office complexes around the country have sat nearly vacant for years. COVID-19’s lockdowns forced most people to work from home. Zoom calls replaced in-person meetings, virtual happy hours replaced real social gatherings, and sweatpants and fuzzy slippers replaced business casual. Many embraced this new work paradigm, and work-from-home became a normal way of life. This unprecedented shift severely impacted commercial real estate. And it impacted the business models of large commercial real estate investment trusts (REITs), which rely on rental income and recurring revenue… like office buildings, malls, and more. Endless prognosticators the last four years have preached the end of this once-thriving industry. But hold on before pronouncing the patient dead. Just recently, there have been strong signs that a resurgence is coming. Elon Musk famously told workers in all his businesses that they must come back to the office if they wish to keep their jobs. Jamie Dimon was very vocal about wanting employees back in the office for JPMorgan Chase (JPM). And just recently, both Amazon (AMZN) and Alphabet (GOOGL) announced that, effective this coming January, employees will return to corporate office centers. Disney (DIS), Meta Platforms (META), and Apple (AAPL) all have return-to-office policies, and even Zoom Video Communications (ZM) – a company that benefited immensely from everyone working from home – now requires employees to come into the office two to three days a week. (Kind of ironic, wouldn’t you say?) According to a report from Resume Builder, a whopping 90% of companies plan to implement return-to-office policies by the end of this year. I’m sure that won’t be easy, but it’s pretty clear that commercial real estate is about to quickly become in demand as more and more companies order their employees back into the office. After all, they need an office to report to. The Rise of REITs First, let’s talk about what exactly REITs are. As I noted above, REIT stands for Real Estate Investment Trust. It’s a way to structure a company that owns and manages income-producing real estate and allows investors to earn part of that income. REITs can own many types of commercial real estate, including: - Office and apartment buildings
- Studios
- Warehouses
- Hospitals
- Shopping centers
- Hotels
- Even commercial forests
REITs earn money by investing in properties and receiving rental income from them. This income is then distributed as dividends to “unitholders,” which are the same as shareholders, but REIT shares are called units. REITs can typically offer higher dividend yields than the average stock. This is because REITs are legally required to return at least 90% of net profits to shareholders. And here’s the kicker. REITs tend to outperform the broad market when interest rates fall, which they are doing right now. As rates fall and the returns on cash accounts shrink, high-yielding REITs becomes much more attractive. There’s another and potentially bigger opportunity for REITs that is admittedly more exciting than office buildings and warehouses. That, of course, is AI. AI touches everything, including commercial real estate. Artificial intelligence requires more and more computing power. And all of that power needs to be housed somewhere. That’s where data centers come in, and they are exploding. 
Data centers are buildings that house racks upon racks of servers. As AI grows, the need for these centers grows with it. And guess what’s needed to begin construction of all these new data centers? REITs. What My Quantum Edge System Found I went through my Quantum Edge data to find the highest scoring REITs, and this one rose to the top. 
Essential Properties Realty Trust (EPRT) owns and manages more than 2,000 single-tenant properties in 49 states. Tenants include car washes, early childhood education centers, casual dining, automotive services, and more. EPRT boasts a Quantum Score right in our optimal buy zone of 70 to 85. That’s backed by strong technicals of 85.3 and solid fundamentals of 70.8. One-year sales growth of 25.8% and three-year growth of 30.1% is impressive, and the company generates a healthy profit margin of 52.9%. Even better, my system has picked up those ever-important green lights signaling that Big Money is buying. Peeking inside the system, we see seven signals over the last month and change, and 15 over the last six months. And in what shouldn’t be a surprise, this REIT has been beating the S&P 500 all year long. But I’m telling you about it today to get one big point across… Big Money is what really moves stocks, and it has already started investing for lower rates. You can see how it’s flooding into EPRT. This is exactly why I created my Quantum Edge system and the master algorithm that powers it. To find high-quality stocks in the biggest trends with the probability of moving higher and making money. REITs are just one unloved area of the market set to rise with falling interest rates and the continued growth of AI. Big Money is paying attention, and we should be, too. Talk soon,  Jason Bodner
Editor, Jason Bodner's Power Trends P.S. I go into more detail about the Master Algorithm in a special briefing on “Project Greenlight.” It’s what fuels my investing services like Quantum Edge Pro, which focuses on small- and mid-cap stocks. The ones that, like REITs, are poised to benefit from the round of rate cuts that just started last week. Click here now for all the details on Project Greenlight and Quantum Edge Pro. | 
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