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About two weeks ago, I mentioned that the market was still underpricing the possibility that Democrat Joe Biden would win the election and that the Democrats win at least 50 seats in the U.S. Senate.
Now that the market is accepting the likelihood of a Biden presidency, it still expects Republicans to hold the Upper Chamber of Congress. Without a takeover of the Senate, the Trump tax cuts would remain in place and thereby help juice the expected returns and cash flow for public companies.
When it comes to 2020, I am not one for making new predictions, especially when it comes to politics or the probability that aliens will make contact sometime in August.
The one thing I do know is that Biden and Trump agree on one trend that is going to make investors a significant amount of money in the future.
Biden just unveiled a $700 billion plan that would help rejuvenate the American economy. And it's strikingly similar to existing policies by the Trump administration to bolster U.S. manufacturing.
Today, I want to show you how to make piles of money in 2020 and beyond riding an inevitable trend that will redefine the future of the American economy.
And it all starts with the ground under your feet.
Make America "Make" Again
For the last three years, U.S. President Donald Trump has railed against China's ongoing intellectual property theft, its central banking policies, and the trade imbalance between the two nations.
COVID-19 dramatically exposed massive holes in the U.S. economy – particularly in our manufacturing reliance on China.
For example, the United States relies almost entirely on China for basic antibiotics, acetaminophen (Tylenol), and other critical medical supplies. It is evident now to senior officials that China could cripple U.S. hospitals and even our military by merely stopping shipments of antibiotics to America.
Over the last two decades, U.S. pharmaceutical companies off-shored production to bolster profitability and reduce material costs. That strategy has dramatically increased the biotech sector's profit margins, but the drawback has been this overwhelming reliance on Chinese goods. This offshoring of manufacturing extends beyond pharmaceuticals to virtually every industry, including retail goods, clothing, chemicals, and technology.
COVID-19 has fueled an increased interest now in the shift of manufacturing back to the United States. I'll discuss the underlying benefactor of this trend in a moment, but I want to discuss the new politics first.
Biden Pushes for the Rust Belt
In the 2016 election, Hillary Clinton's failure to campaign across the Rust Belt states enabled Trump to gain enough votes in Ohio, Michigan, and Wisconsin to take the Electoral College.
Biden's strategy aims to satisfy the growing demands from the more progressive wing of his party while attempting to reclaim the Rust Belt for the Democrats.
Part of that strategy is to center his attention on domestic manufacturing. This week, Biden proposed a $700 billion plan to "Buy American" products using the federal government's regulatory and spending power to bolster manufacturing and technology companies.
While the idea is very top-down and picks winners and losers, the dollar figure in question is significant enough to incentivize American companies to "repatriate" production.
The plan includes a $400 billion, four-year jump in the government's buying of domestically produced goods, and another $300 billion for new research and development in technology concerns. That stimulus spending is meant to jump-start new manufacturing in the United States, to stimulate more "onshoring" and economic activities.
The assumption is that new manufacturing would create new businesses catering to these larger manufacturing centers and stronger supply chains. Biden advisor Jake Sullivan called the plan the "largest mobilization of public investments in procurement, infrastructure, and R&D since World War II."
Regardless of whether Trump or Biden is president in 2021, the onshoring of manufacturing is a megatrend that will dominate the next decade.
For instance, Money Morning Technology Specialist Michael Robinson has written for years about the coming 5G Revolution, the Internet of Things, and the Smart Economy that will emerge in the years ahead.
Part of that revolution will require an inevitable shift in U.S. supply chains and procurement. While Biden's plan is more centralized, it's not a stretch to imagine that the inevitable trend would also transpire under Trump.
It's already underway, as evidenced by recent trends in real estate. And real estate is exactly how we're going to tap into this megatrend.
Here's the Long-Term Play
The demand for domestic manufacturing and technology requires a significant boost in one thing: industrial real estate.
But we want to take advantage of industrial demand and tap into real estate investment trusts (REITs) and their significant tax benefits. You see, REITs do not tax shareholders at the corporate level, and pass-through income enables investors to collect much higher yields.
The Plymouth Industrial REIT (NYSE: PLYM) offers the right blend of upside and yield right now. The company owns single and multi-tenant industrial properties across the United States. It prefers to own and manage Class-B industrial properties in smaller cities and towns across the United States. The preferred locations are in secondary cities (not expensive markets like Manhattan or San Francisco.) Instead, it is focusing on areas like Cincinnati, Columbus, and Cleveland in Ohio, as well as Atlanta, Memphis, and locations in Indiana. It is also expanding its presence in the Jacksonville, Fla., market.
Significant manufacturing will require extensive warehouse and distribution, which comprises about 40% of Plymouth's property portfolio. Manufacturing and warehouse companies are an additional 31% of the tenant base. They had a 96% occupancy rate at the end of 2019, and I do not expect to see that change very much in the next could of quarterly reports as the economy begins to recover.
Plymouth shares are paying a rock-solid 6.23% right now and still trade at about a 40% discount to their 52-week high. In the long term, you can park some capital here and forget about it with dividend reinvestment.
I expect your initial investment will at least double within the next 24 to 30 months.
This next recommendation should pay off much sooner.
Target Big, Short-Term Profits with This
Here, we're looking at another best-in-class industrial REIT. This time, it's Stag Industrial Inc. (NYSE: STAG).
The REIT owns 450 buildings in 38 states, with approximately 91.4 million rentable square feet.
Fully 365 of its buildings are warehouse and distribution space, the type used by e-commerce firms. Amazon.com Inc. (NASDAQ: AMZN) is its largest tenant, while the U.S. government General Services Administration (GSA) is the second-largest.
This is a rock-solid REIT that has bounced back nicely from its March lows. While there remains a disconnect between the Dow and the underlying economy (unemployment, weak earnings, and uncertainty of what happens when stimulus runs dry), the possibility of a pullback in the market is rising.
Stag is a stock that investors should want to own, but not at current levels. Instead, they can select the entry point on which they want to own the stock. I recommend the use of a cash-secured put to generate income.
Looking 71 days out, investors should consider STAG Sept. 18, 2020 $25 puts (STAG200918P00025000). There is a wide, $0.15 bid-ask spread, but the recent price of around $0.85 is a reasonable balance of risk and reward.
With a cash-secured put, you would put aside enough money to purchase 100 shares at the strike price of $25 should it fall below that level by the expiration date. Selling to open one contract would generate $85 in cash, while you hope that the stock stays above that level over the next 71 days.
The key risk is that you will need to purchase the stock if it falls below the $25 mark, and you would effectively start an open position in negative if the stock drops below $24.15 (which would be the breakeven price of the stock and the premium). With that in mind, there are many reasons to remain bullish about Stag.
Right now, 61% of its tenants have revenue of more than $1 billion, and 86% have revenue of greater than $100 million. These companies should have the financial strength to keep paying the rent during downtimes in the economy. The stock pays a reliable 4.93% dividend that should remain safe in the years ahead. In fact, given the enormous cash flow anticipated by the U.S. manufacturing onshoring trend, Stag could also become a long-term play in these pages later this fall.
And for more long-term profit trends you can invest in, don't miss this new investment opportunity from Michael Robinson that can allow you to capitalize on the Internet itself… Internet usage has been soaring 70% since February. This trend could spell out a huge payday – click here to keep reading.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.