Quick Note

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Ares Commercial Real Estate: It Can Still Get Much Worse for this 16.1% Yield

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Members Mailbag: We received an inquiry from a member this week about ACRE (expected to announce earnings on Tues May 2nd). We believe that some investors view this particular mortgage REIT (ACRE) as an attractive contrarian opportunity, considering the shares are down big (-40% over the last year), the yield has mathematically grown to a tempting 16.1%, and it has a well known brand name attached to it (Ares). However, the commercial real estate market is terrible. We share comparative data points on over 100 big-dividend REITs (sorted by sub-industry), dig into some important details on ACRE, and then conclude with our opinion on investing.

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Owl Rock: 40 Big-Yield BDCs, Compared

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With BDC earnings season set to kick off this week (starting with Ares Capital on Tuesday pre-market), we’ll also be watching Owl Rock closely (set to announce two weeks later). One key metric to watch will be book value as the economy heads towards recession and write-downs could start to more significantly detract from the benefits of rising interest rates. This quick note shares data on 40 big-yield BDC, and digs into Owl Rock in more detail.

Adobe (ADBE) Earnings Note

This highly-profitable “creative” software company announced powerful revenue and operating income on Wednesday after the close (the shares are up significantly Thursday), and it’s well-positioned to keep driving profitable growth for the decade ahead. Its products benefit from strong moats (high switching costs), increasing subscription revenue and lots of cash flow to fund growth and buy back shares. This is a business that is positioned to weather the economic cycle well, and it trades at very reasonable valuation multiples, especially considering profit margins and revenue growth guidance both remain robust.

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SOFI: Fear Creates Opportunity

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SoFi Technologies (SOFI) is a financial services company, focused mainly on lending (see Income Statement operating segments below). And the shares are currently getting pummeled for one main reason: Fear. Specifically, fear of the upcoming Supreme Court ruling on student loan forgiveness and fear of banks defaulting (i.e. contagion to the financial system from the recent run on Silicon Valley Bank (SIVB)). In this note, we quickly review SOFI’s business and valuation, and then conclude with our strong opinion on investing (i.e. is the recent sell off an opportunity or a warning).

Top Growth Stocks - Still Hated

In this quick note, we share updated data on top growth stocks (those with at least 20% revenue growth expectations for this year and next). You’ll notice the names with positive net margins have performed relatively better over the last year (quite the opposite of when the pandemic bubble had full momentum behind it and revenue growth was all that seemed to matter). The table also shows recent performance, short interest, margins, various valuation metrics and more. It’s hard to take a contrarian view, but that’s often a profitable approach for selective long-term investors at lower points in the market cycle (i.e. right now).

Quick Note: Medical Properties Trust Update

Members Mailbag: Medical Properties Trust (MPW) is a big-dividend healthcare REIT (the current yield is 10.4%) that has increased its dividend for 10 years in a row. This makes it tempting to a lot of investors. However, MPW short interest (i.e. investors betting against the shares) has also increased to a very high level (and the shares are down significantly). We previously wrote up MPW in detail here. In this quick note, we provide an update on MPW highlighting a few important things for investors to consider.

Disclaimer: Everything on this website is for informational purposes only. No information contained herein is intended to be an offer or recommendation to buy or sell any investment. Investing is risky. Consult an investment and/or tax professional before investing.