The market has been kind this month, and that finds me putting more of the money that I had put on the sidelines to work. I went shopping on Monday and Tuesday. I want to crack open my bag to show you what I picked up earlier this week.
I reinitiated my position in humbled real estate portal Zillow Group (ZG) (Z). I also added to my existing positions in cannabis grow-house landlord Innovative Industrial Properties (IIPR), and livestreaming specialist fuboTV (FUBO). Why did I choose these three very different businesses to make a bigger part of my stock portfolio? I’m here to tell you.
1. Zillow Group
A lot has happened to Zillow Group over the past two years, but the biggest takeaway is that the stock is down 80% from its peak in early 2021. Investors have steered clear of the real estate portal once rising mortgage rates began slowing transaction activity. With less bang for the finance buck, real estate prices have at least temporarily stopped their rapid ascent.
Investors didn’t like when Zillow decided to get out of the home-flipping business in late 2021. The stock took a 25% hit the day that the end of Zillow Offers was announced.
History shows that it was the right call. The two other publicly traded players in the iBuying market have gone on to suffer even bigger hits. With Zillow winding down its portfolio of residential properties, it can now focus on the portals and Premier agents platform that put it on the map.
The market is chilly for real estate agents and related service providers, but that only makes it more important that they stay close to Zillow as the top draw for folks looking to make a move. Flipping homes helped prop the top line, but it was a cash-draining business generating negative margins. The dust should settle here, and analysts see double-digit revenue growth returning by next year.
2. Innovative Industrial Properties
Real estate investment trusts, or REITs, come in many different varieties. Investors typically think of REITs as owning residential real estate, malls, offices, or medical centers, but there are some really dynamic opportunities to generate some income with stakes in cellphone towers, data center properties, and even cannabis grow houses.
Innovative Industrial Properties is in the pot lot. It offers state-licensed growers in the regulated cannabis industry the funds to expand by purchasing their assets, then leasing them back to them in long-term contracts. It’s a win-win.
I diversified into growth-oriented REITs — including Innovative Industrial Properties — two years ago when I wanted to diversify from my growth stocks that had delivered great returns in 2020 despite challenging fundamentals. The strategy paid off in 2021, but it didn’t help in the 2022 deluge that saw even income-producing investments take hits.
Innovative Industrial Properties took a big hit last summer when it revealed that its first and one of its largest tenants had stopped paying rent. Kings Garden was accounting for 8% of the REIT’s revenue, so it was a pretty big deal.
REITs in general were already coming under fire last year as interest rates rose. With high-yielding money market funds now approaching (if not topping) 4% returns and asset prices unlikely to appreciate in the near term, REIT yields had to move higher with their stock prices moving lower. The same Innovative Industrial Properties that was yielding 4% two years ago is now at 6.5%.
The risks are there. Innovative Industrial Properties won’t generate all of the gains that an investor might find in tapping the right cannabis stocks, but if its tenants face financial distress, the downside is real.
I still think it’s an attractive way to play a market that the states continue to embrace as a way to generate more tax revenue. It pays a high-enough yield that money market rates aren’t likely to match by the time the Fed is done tightening its monetary policy.
3. fuboTV
Lastly, I also added to my position in fuboTV. The livestreaming service has taken a bigger hit than Zillow and Innovative Industrial Properties, down a blistering 97% since peaking in late 2020.
The platform itself keeps growing. Revenue rose a respectable 44% in its latest quarter, but losses continue, ad revenue is going the wrong way, and margins have historically been thin for this high-priced niche in the streaming market.
After mesmerizing the market with intentions to cash in on its sports-centric subscriber base by dipping its toes into the sports-wagering market — the event that sent the stock to its all-time high during the 2020 holiday season — it has folded on that front.
A recent move I like is that it became the only one of the five major livestreaming services to agree to carry the 19 Bally Sports regional sports networks. There is always the fear that it is paying dearly for this, but it’s a necessary move to differentiate itself from the competition through its “sports first” mentality.
It’s a risky bet, but after swooning late last year as an obvious tax-loss-selling candidate, I feel the market will be kinder to companies with superior growth in 2023.
— Rick Munarriz
Where to Invest $99 [sponsor]Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.
Source: The Motley Fool