How to Profit 48% on a Blockbuster Merger That Was Already Announced

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Just try buying a house or renting an apartment these days without visiting the websites of Zillow Inc. (Nasdaq: Z) or Trulia Inc. (Nasdaq: TRLA).

Eighty-three million visitors checked in on Zillow in June, while 54 million visited Trulia - without much overlap between the two.

It's one heck of a business opportunity. And that's why Zillow and Trulia late last month agreed to merge in a $3.5 billion deal that creates the world's biggest real estate player on the web.

As big as that blockbuster was, however, it's still not enough to lock down the market.

In a recent survey of potential home buyers, the National Association of Realtors trade group found that 74% were planning to use the Internet to search for a new house. And according to the media analysts at Borrell Associates, from September 2012 to September 2013, more than half of all real estate advertising, or $13 billion, was spent online - and at that level, real estate is the No. 1 spender in online advertising.

The bottom line: There's still plenty of room for a host of online real estate specialists - especially for players that offer services the Zillow/Trulia cartel doesn't have.

We've identified the perfect challenger. In fact, we told you about it three months before the merger.

We believe this stock is still good for a near-term pop of 48%. And today we're going to show you who it is, and how to profit...

The Landlord's Best Friend

how to profit

Rental inflation is another big factor in the web's growing role in real estate.

Just look at the stats. For the 12 months ended June 30, U.S. rents rose an average of 5.4%. And several big cities saw double-digit increases; San Francisco had a 14.7% increase, while Fort Worth, Texas, saw a 15.7% increase.

In the meantime, the American Apartment Owners Association trade group says the national apartment occupancy rate is now nearly 95%.

That tight market means renters are frantically turning to the web for leads. And landlords can afford to be far more selective when choosing tenants.

In an inflationary seller's market, landlords have every incentive to conduct extensive background checks on potential tenants.

Here's the best company to fulfill that need - and how to profit from it...

CoreLogic Inc. (NYSE: CLGX) operates deep databases on a wide range of real estate sectors.

We're talking everything from single-family homes and apartment buildings to oil and gas pipelines and telecommunications wires.

CoreLogic is popular with real estate investors, landlords, and banks. It does credit checks and criminal record searches, with a laser focus on property damage-related criminal charges.

As such, the Irvine, Calif.-based company is uniquely positioned to capitalize on the nation's surging real estate market, including rising rental demand that has resulted in housing inflation in many metropolitan areas.

Indeed, when I first talked about CoreLogic back in April, I told you I had "uncovered" a unique way to cash in on the surging real estate market.

Now others are catching on...

Wall Street Wakes Up to CoreLogic's (NYSE: CLGX) Potential

Wall Street has since awakened to CoreLogic's unparalleled advantage as the real estate sector's "go to" firm for tax records, credit checks, and vital historical data.

In a note last month, Barclays put a $37 price target on CLGX stock. That represents a 37% upside from where CLGX has recently been trading.

Analysts at Monness Crespi and Hardt initiated coverage on shares of CoreLogic in a research note on July 7. The firm set a "Buy" rating and a $40 price target on the stock for an upside of 48% from here.

It's hard to believe this company was only launched in 2010. Then again, CoreLogic traces its roots back 50 years.

The turning point for CoreLogic occurred in 1991, when it was combined with two other companies to form a sprawling real estate information services firm.

Over the ensuing years, CoreLogic changed hands several times as it got caught up in a series of mergers and acquisitions. Four years ago, it was spun off as a stand-alone, publicly traded firm focused on providing real estate and, increasingly, financial services data, including mortgages and consumer loans.

Indeed, the company ranks as one of the nation's largest Big Data plays on the real estate industry.

When companies and institutions use computer tools - such as IBM Corp.'s Watson - to sift through vast amounts of raw unstructured data and then provide actionable analysis... that's Big Data.

And that's exactly what CoreLogic does.

The company operates databases that encompass more than 3.3 billion records in the United States, Australia, and New Zealand.

CoreLogic maintains records on everything to do with property, as well as credit information used for auto loans and home mortgages. These include:

  • More than 147 million property records representing approximately 99.8% of the U.S. population.
  • Historical data on more than 795 million real estate transactions.
  • Tax-payment history on more than 128 million parcels.
  • More than 99% of all U.S. county, municipal, and special jurisdictions tax records.
  • Relationships with more than 650,000 real estate agents and brokers, as well as 17 of the top 20 multiple-listing services and 2,500 mortgage bankers.
  • And approximately 23 million active tenant/landlord records representing approximately 70% of the rental market.

The List Price

Trading at $27 a share, CoreLogic has a $2.5 billion market cap and a forward price/earnings (P/E) ratio of roughly 15.2, which is a 22% discount from the 18.6 forward P/E for the Standard & Poor's 500. It has operating margins of 11% and an 8% return on equity.

I'd like to see stronger earnings, but the company recently announced a cost-cutting plan that is starting to pay off.

We can see that in the operating income of $42.1 million it just reported for the second quarter. That's an 11% increase from a year ago but a whopping 208% increase from this year's first quarter.

Net income from continuing operations in the period fell 21% from last year's second quarter. But again, the company is making fast progress - it lost $3.9 million in the first quarter.

What investors have in CoreLogic is a great long-term Big Data play on the nation's real estate sector.

Over the last three years, it has grown its earnings per share at a rate of more than 37%. At that rate, per-share profits - and the stock's value - could double in less than three years.

That makes CoreLogic the kind of tech stock that could play a major role in improving your net worth.

And that's our job here at Strategic Tech Investor - looking beyond the headlines and telling you exactly how to profit from hidden opportunities.

More from Michael Robinson: The "Cowboy Split" is an easy-to-use investment strategy that will protect you from volatile markets and maximize your gains. Here's how to put this strategy to work for you today...

About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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