You always hear that the market is “efficient,” but that’s just not the case.
In an “efficient market,” there are very few opportunities for outsized gains. But you and I both know there are plenty of moneymaking opportunities in this market.
The best opportunities come from inefficiencies and overreactions.
Plunging bond yields have created huge opportunities for REITs.
Many of the best dividend-paying REITs are trading at high prices at the moment.
Despite the rich prices in the REIT space, I still love the idea of buying REITs for your portfolio in an environment of falling interest rates. In just a moment, we’ll show you our top REIT of the week, which pays an astounding 10% yield.
If rates fall further, valuations of REITs will be even higher than they sit today.
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We still have a long way to go before rates go negative in the States. But some, like bond complex Pimco, are increasing the odds of negative rates on a day-by-day basis.
Imagine then the joy I experienced when finding a REIT that pays a massive dividend and trades for a very reasonable valuation.
Frankly, I’m overwhelmed.
The only way this happens is inefficiency.
Here’s the top REIT I’m referring to…
This Top REIT Will Pay You a Whopping 10%
Indeed, a certain type of REIT was blown up by the market in July thanks to political bluster.
A politician’s words can spook the market.
For those REITs in the private prison and detention business, the hyperbole, politically speaking, is off the charts.
Democratic candidate Elizabeth Warren stated that she was in favor of abolishing all private prisons.
If she wins, that indeed would be horrendous for prison REITs.
For example, her words alone succeeded in destroying some 28% of the value of prison and detention center REIT CoreCivic Inc. (NYSE: CXW).
The end of a public/private partnership in the incarceration business would indeed be the end of the world for CoreCivic, but is the market thinking rationally here?
I think not.
The trouble for CoreCivic began after candidate Warren announced her big ideas for prisons and detention centers in early July.
But for investors in private prison REITs like CoreCivic, the issue goes beyond Warren.
Where do the other Democratic candidates stand on the issue?
At the moment, there are two camps: moderates and progressives.
Any progressive candidate will be bad for prison REITs.
Any moderate and those favoring free markets will have less of an impact.
The market has clearly overreacted here.
That means we can exploit the opportunity to buy CoreCivic today at severely discounted prices.
Shares currently trade for slightly more than 10 times current-year expected earnings.
Not to mention that 10% dividend yield.
In an environment of collapsing interest rates, the 10% will no doubt attract buyers.
CoreCivic is not going to stay at this price for long.
From a total return perspective, the company very well may be the stock of the century to buy today.
That’s why CoreCivic picked up our highest VQScore ranking available.
The VQScore system analyzes stocks on a total return basis. It examines fundamentals like financials, earnings, and revenue combined with cash flow and dividends.
It is a powerful combination, and it’s currently very much in the favor of the investor today.
Where else can you find a stock trading for a low valuation paying a 10% dividend?
There is no such place. Not in this market environment.
Sure, there is risk.
To the extent the government discontinues working with private prison and detention center operators like CoreCivic, the gig is up.
But that risk is already priced into the stock today.
While we are still more than a year away from the election, the inefficiency in CoreCivic will not last that long.
My suspicion is that buyers of CoreCivic today could see a double in share price appreciation as the 10% dividend merits a 20x multiple instead of the current 10.
And buyers today get to collect that 10% dividend while they wait for the stock to double in value as worries over the private/public partnership subside.
Get in now, before the inefficiency is corrected.
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