Yesterday, the markets rallied thanks to U.S. President Donald Trump's announcement that the U.S. Treasury will delay income tax payments and take aggressive action to get money directly to American consumers.
Right now, I highly advocate that people hold cash and explore inverse ETFs to capitalize on the downturn.
Momentum in the market has been very negative. And there has been virtually no buying pressure to match the forced sell-off that we're seeing from liquidation of funds and larger institutions.
That said, we have reached the point where some prices have become simply too attractive to ignore...
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This is especially evident in the real estate market, where certain assets are trading like the companies are going out of business.
Today, I want to discuss one real estate investment trust (REIT) that will thrive through this economic crisis and provide a big opportunity for investors in the months ahead.
The Coronavirus Paradox Will Benefit One REIT
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The outbreak of COVID-19 has now tallied 5,000 patients in the United States. Officials believe hospitals will see a massive spike in patients in the next two weeks.
So why exactly are the companies that own acute care hospitals trading like they are going out of business?
That has been the case for Medical Properties Trust Inc. (NYSE: MPW), a hospital REIT that saw shares plunge more than 23% on Monday.
The Alabama-based company invests in healthcare facilities specializing in acute care and community and rehabilitation hospitals.
These are the exact centers that are going to experience an incredible amount of demand in the coming months. Roughly 81% of its income comes directly from the hospital system, offering pure exposure to the coronavirus threat.
About 30% of its income comes from the Steward Health Care System, a firm that attends to patients in Arizona, Arkansas, Florida, Louisiana, Massachusetts, New Hampshire, New Jersey, Ohio, Pennsylvania, Texas, and Utah.
Steward Health Care is an important leader in the coronavirus, as its Dorchester, Mass.--based Carney Hospital will become the nation's first dedicated facility for the coronavirus.
It will convert all 159 beds to enhance "patient isolation protocols" and boost equipment like ventilators.
Buy MPW and Boost Your Income
Medical Properties Trust is currently trading around $14.75 and pays a whopping 7.32% dividend in the process.
Shares have fallen as much as 48% from all-time highs set just a month ago. My take is that the sell-off hasn't been fueled by fundamentals - after all, you're talking about a company that will see its tenants experience a massive rise in demand in the months ahead - and could last longer depending on whether efforts to flatten the epidemic curve work.
This sell-off is likely driven by a combination of fear and forced liquidation by institutional buyers. Investors looking to get into this stock should consider a variety of options when trading.
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For more conservative buyers, break your capital into three chunks. You'll want to buy a 33% position in MPW at market price today. You can purchase another 33% if the stock retraces to $13. And then you will save the rest should this break down toward the $10 range in a broader sell-off.
Action to Take: More advanced traders might want to consider a covered call to help reduce downside and potentially lock in some profits should the stock rise. You can buy the stock for $14.75 today and look at the July 17 $17 call. Consider selling it for $1.75 or better. This would provide protection for a sell-off of 11.8%. Meanwhile, if the stock rose to $17 and were exercised, you would be looking at a 27% return on this trade.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.