The Long and the Short of It
By Michael Hlinka
I’m going to warn the reader right away: I am far less confident about my picks in this column than I have been in previous columns. But as you will soon see, for very different reasons.
Because I like to accentuate the positive, I’ll start with my long selection: Medical Properties Trust Inc (NYSE:MPW), which closed on April 28th, 2023 at USD$8.77.
MPW is the second largest non-government owner of hospitals in the world. Its portfolio is diversified between the United States (61% of its properties) and the United Kingdom (at 21%), and investments in other countries include Australia, Germany, Switzerland and Spain. As these are all developed nations with aging populations, it stands to reason that demand for hospitals will be robust.
MPW is organized as a real estate investment trust, or REIT for short. One of the important characteristics of this structure is that as a REIT, it must payout most of its earnings in the form of dividends, and MPW’s dividend yield stands at a juicy 13.2%. This suggests that the market believes that the dividend will be cut.
While it’s true that MPW is having tenant challenges and much of its debt is coming due in the near future, I believe it should be able to maintain its $0.29 quarterly payout, although this is not a guarantee. When considering the odds, I think they’re better than a 50-50-coin flip, which will provide tremendous price support at current levels.
In a previous column, I acknowledged that I prefer to short companies that have a good chance of going out of business within the foreseeable future. This month, I have a different suggestion, and the company will probably be around for a while.
Shares of Etsy Inc (NASDAQ:ETSY) closed April 28th, 2023 at USD$101.03.
The company presents itself as the “global marketplace for unique and creative goods”. Its platform allows 7.5 million suppliers of, well… unique and creative goods, to connect with 95 million potential buyers around the globe. Although its growth was explosive during the COVID pandemic, there are several worrying trends for anyone contemplating a purchase. ETSY has seen its gross profit margin decline by approximately 100 basis points per year, over the past three years; sales growth has cooled from a red-hot 34% from 2020 to 2021, to a much more tepid 10% from 2021 to 2022, and also during this time, operating expenses rose by 44% and 19%, respectively.
Clearly, the trend is not ETSY’s friend!
The company will be reporting first quarter earnings this week and my gut tells me that top-line growth will disappoint, potentially leading to an immediate sell-off as a result. That being noted: if the numbers are good, the stock could easily pop, so it’s important to tread warily on this one. I believe that ETSY will see $75 within the next 12 months and could easily hit $50 (which is entirely possible), it might just take a while. And who knows, it might just be a future long selection.
Bottom line(s)
2-year price target for MPW: $20.00 (currently at $8.77)
But I would not be shocked if it gets there before this year is out, provided there are interest rate cuts in the second half of the year. And that being said: I’m really tempted to buy and hold for the next decade, and just let those quarterly dividends roll in!
1-yr price target for ETSY: $75.00 (currently at $101.31)
All articles published by PAIP Canada Inc. are for informative purposes only and does not constitute advice. We recommending consulting by a subject matter expert before making any financial decision(s).