Warren Buffett Bought Only One Stock in This Sector—and It’s Exploding
Companies / Retail Sector Feb 25, 2019 - 06:39 PM GMTBy: Stephen_McBride
Amazon sells stuff online for cheap. Usually cheaper than what you’ll pay in a store.
This has given the company a critical edge over brick-and-mortar retailers.
Since it was founded 24 years ago, Amazon has contributed to putting Bon-Ton, Borders, Circuit City, RadioShack and hundreds of store chains out of business.
Many other retailers are barely clinging to life.
Macy’s (M), JCPenney (JCP), and GameStop (GME) still have a pulse, but they’re fading fast. Since 2014, their stocks have plunged 53%, 77%, and 68%.
Store closings in the US hit an all-time high last year, according to leading research firm Nielsen.
As such, many investors assume there are only two types of retailers:
- Those that Amazon has already put out of business…
- and those that Amazon will soon put out of business.
But what I’m about to say will surprise you.
This Stock Profits from Amazon-Proof Businesses
There’s a third type of retailer that Amazon can never disrupt. It’s what I call an undisruptable business. And one innovative company has figured out how to tap into these Amazon-proof businesses.
It has rewarded stockholders with twice the gains of Amazon in the past year. It also pays a big and growing dividend. And in 2017, super-investor Warren Buffet quietly bought 10% of the company.
The company is called STORE Capital (STOR).
It partners with businesses that are immune to Amazon’s disruption. I’m talking about businesses like daycare centers, vet clinics, hair salons, dental practices, gyms, and restaurants.
In other words, businesses that you must visit in person.
Want a new TV? Order one on Amazon and it’ll be on your porch tomorrow.
But if you need a cavity fixed, or your dog groomed, or a babysitter to watch your kid, Amazon can’t help you.
These small- and medium-sized businesses are thriving while many others struggle to keep the doors open.
STORE Is a Unique Real Estate Play
STORE is a Real Estate Investment Trust (REIT).
REITs earn rental income from properties they own. Then they hand most of the profits to investors in the form of dividends.
STORE is unlike any REIT out there. Most REITs specialize in a certain type of real estate. For example, a residential REIT might own condos or apartment buildings.
STORE handpicks businesses that are shielded from the disruptive force of online retail. In short, it buys land and buildings from these “undisputable” businesses, then leases it back to them.
The arrangement is a win-win. Many smaller shops have a lot of money tied up in real estate. STORE helps them turn that value into cash they can invest in growing their businesses.
STORE Is Worth Around $7 Billion and Is Going After a $3 Trillion Market
I often look to invest in smaller firms going after large markets. As I show in my latest special report The Great Disruptors, these kinds of stocks could double or triple quickly and still have lots of room to grow.
STORE is going after a huge market. Mid-sized businesses employ one in every four American workers. STORE could triple its market share and it would still own less than 1% of its target market in the US.
STORE owns properties used by 421 tenants operating in 103 different industries in 49 US states. 75% of its tenants collect over $50 million in revenue a year.
According to company filings, the businesses it works with are growing profits at roughly 15% a year.
It’s Warren Buffett’s Only Real Estate Stock
As I noted, super-investor Warren Buffett holds 10% of STORE. And it’s the only real estate stock he owns.
If Buffet buys anything, you take notice. He has built his $85 billion fortune by owning great businesses for the long haul.
For example, he first bought $1 billion worth of Coca-Cola (KO) shares over 30 years ago and says he’d “never sell a share.”
Buffett’s big stake in STORE tells a lot about how strong its business model is.
STORE’s Earnings Are Exploding
Last quarter, STORE reported record earnings of $137 million. It was a 69% jump from a year earlier.
The company pays a 4.1% dividend—more than double the S&P 500 average. And it has raised its dividend 32% in the past five years.
As it continues to partner with Amazon-proof businesses, I see its dividend growing around 7–8% per year.
Today, for every STORE share you own, you’ll get a $1.32 cash payment each year. If it continues to hike its dividend as I expect, you’ll get an automatic raise each year.
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By Stephen McBride
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