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The Consumer Price Index results this week reveal that inflation is continuing unchecked, which should be no surprise - I've been telling my readers for months now that what we're seeing is structural and not temporary.
Given that the energy supply and demand imbalance is unlikely to be fixed soon, inflation will likely stay higher than most of us would like to see. We're not producing enough fossil fuels to meet demand, and even if we did, we do not have enough refining capacity to make a difference in the short run.
Renewables are decades away from meeting a substantial part of our energy needs.
Add it all up, and it adds up to an inflation rate that stays well above the Fed's 2% target for longer than anyone wants.
This also means more interest rate hikes are coming, and I suspect the stock market is not going to like that very much at all. Most of the indexes are already in bear market territory, but I won't be shocked if prices keep falling until the rate increases slow down.
Fortunately for us, there is a playbook for this type of market. We want to focus on owning assets that respond well to inflation and produce high cash flows. As outside investors, we want to see those cash flows paid out as dividends so we can reinvest them into more shares.
I'm very fond of real estate investment trusts (REITs) as an asset class that meets these criteria. Historically, real estate does very well during periods of high inflation, outperforming stocks in most bear market cycles.
And I've found one that's trading at a huge discount right now, offering a 4.5% dividend along with a triple tailwind that could easily push it back up to its 52-week highs and beyond...
Why LXP Is the Best REIT to Buy Right Now
I have watched developments at LXP Industrial Trust (NYSE: LXP) very carefully this year. Activist investor Jonathan Litt of Land and Building Investment Management has been pushing LXP execs to undertake a strategic review of ways to increase shareholder value. He even offered $16 a share to buy LXP Industrial.
LXP has ignored the offer and recently halted the strategic review process citing changing economic conditions.
The stock has sold off since that announcement was made. What we have now is a portfolio of 111 single-tenant industrial properties trading at a bargain price. In addition, 99.8% of the portfolio is leased, and the average lease has over six years until it expires.
The portfolio is focused on the Sunbelt and Midwest markets, including a strong presence in south Texas. South Texas has massive port exposure making it a key player in both energy and e-commerce shipping.
LXP Industrial's biggest tenant is Amazon, but the roster includes some huge retail market players. Nissan, Kellogg, FedEx, and Wal-Mart also lease massive amounts of shipping and warehouse space from LXP.
There are quite a few factors that could help drive the stock price higher.
First off, insiders clearly think LXP is on the right track, as they have been heavy buyers of the stock since the strategic review process was suspended earlier this year.
They're also in an excellent spot to benefit from the rebuilding of the supply chain and the continued rise of e-commerce. Given their focus in industrial real estate, we don't have to be worried about any of their tenants defaulting on their rent, and more cash flow is good for the stock.
We've seen a lot of merger activity in single-tenant industrial real estate in the past year, so a bid from another REIT or private equity firm would not be a surprise either.
A return to the 52-week highs is a 50% gain, and we collect a 4.53% dividend while we wait for good things to happen. In the long term, this REIT could be a compounder that adds to your net worth for decades.
As the bear market continues, investors need to keep looking for more opportunities to invest in companies that do well during recessions. And Money Morning's Chief Investment Strategist, Shah Gilani, may have found the opportunity of a lifetime.
Shah recently sat down with a man who has more than 40 years of buying successful businesses under his belt and beat Warren Buffett 3-to-1 during the 2008 Great Recession. One of his last deals made a 5,135% return, and he's got a new project on the horizon.
Investors who act now could potentially earn incredible returns while paying a significant discount.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.