- Published on Monday, 19 March 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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I will keep my commentary brief. I want to introduce you to somebody I think can make you a lot of money. But before I do... I need to share some big news from Friday.
It looks like China will beat America in the race to energy independence.
When I first wrote about China's huge natural gas discovery in late December, my phone lit up. I had reporters across the U.S. and even Europe wanting to know why I wrote what I did.
Now, just three months later, the story is even bigger. And my bold prediction is quickly becoming true.
On Friday, Beijing told us its shale-gas production will go from almost nothing today to 6.5 billion cubic meters by 2015... and more than 10 times as much by the end of this decade.
The announcement marks a huge shift in the world's energy markets. And it is not just another example of propaganda from a country known to fudge its data. The United States readily admits China is a game changer.
With over 36 trillion cubic meters of gas trapped within its shale deposits... China owns the world's largest gas reserves. And those figures are straight from Washington.
Say so long to coal... and so long to nuclear energy. Cheap, abundant natural gas will soon be the world's energy source of choice.
To help prove it, let me tell you a about some news out of one of the stocks I added to the Unconventional Wealth portfolio in mid-December. The company has teamed up with one of China's largest heavy-duty truck makers. Together, they are building 12-liter truck motors that run on natural gas.
Thanks to the technology pioneered by the company I recommended, these engines produce the same power and torque of a conventional diesel engine... but they do it with less fuel and, because they run on ever-abundant natural gas, the fuel is dramatically cheaper.
It is no coincidence that at the same time China made its big announcement on Friday, shares of the company I've handpicked to take advantage of this trend hit yet another 52-week high.
In just three months.... Our shares have surged by over 62%.
Best of all, a congressman in Pennsylvania just introduced legislation that could hand us even bigger gains.
And get this... it's the same guy I recently had breakfast with. You can read that story right here.
[Editor's Note: Like I said at the top, I would like to introduce you to somebody I think can make you a lot of money. As a well-seasoned trader and veteran industry insider, Jim Stanton has made plenty of people big money. Over the next few weeks, we will introduce you to the innovative trading strategy that made his name one of the most sought after in the industry.
But today... he wants to share his thoughts on a unique real estate opportunity.]
A Unique Ground-Floor Opportunity
By Jim Stanton, Guest Editor, Insiders Strategy Group
Being a native Washingtonian and having worked for a real estate developer in D.C., I have witnessed three major real estate bubbles.
Two of them provided great investment opportunities and the third one is unfolding right now. But, before serving up the main course, a little flashback is in order.
While in college, I opened a shop in Ocean City, Md., for the summer of 1973. Real estate had been booming in this oceanfront community since 1968. At its height, high-rise oceanfront condos were selling for around $70,000 (big bucks back then).
As with most real estate bubbles, developers overbuilt, vacancy rates and the number of unsold properties surged, while prices headed the other way.
In 1974, the oceanfront condos were selling for less than half their original price. They were a steal at those prices so I tried to get a group of investors to buy a block of units, along with a prime location hotel, which had also depreciated about 50%.
The investors liked the idea but they passed on the deal due to my young age and lack of real estate experience. Their loss. We would have made millions.
Fast-forward to the late 1980s when the Japanese were buying everything they could get their hands on. They purchased a lot of property in Hawaii and the lower 48, including the Pebble Beach golf club.
The Japanese buying spree caused a ripple effect in the U.S. housing market. Prices jumped into the early 1990s, which was all she wrote. The bubble burst and prices moved lower into 1996.
I was not about to let this opportunity pass me by.
A few friends and I bought some distressed properties in late 1996, which are still performing better than the stock market, despite the most recent slide in real estate.
My point is that prime real estate is always a good investment if it's purchased at the right time, location, and price.
The Tide Is Turning
According to the latest housing numbers, the National Association of Realtors (NAR), the Case-Shiller indexes and the amount of property I see that is now "under contract," the real estate market is bottoming. Sales are picking up in several residential markets but prices will continue to stagnate until the market absorbs the "foreclosed inventory."
Apartment vacancies are now at a 10-year low, and if you do your homework, you can buy a house or condo, in many markets, that will throw off positive cash flow.
Based on my experience watching these boom-and-bust cycles, real estate -- especially on the commercial side -- is the place to be.
Commercial real estate has four main subcategories: office, industrial, retail and multifamily. The sectors were hit as hard, or harder, than the residential market and bottomed out about a year ago. See chart below.
The hardest hit was the industrial sector. But that is where the most value is today. Things are changing in the global marketplace that will positively affect the value in this sector.
Chiefly, manufacturing jobs are returning to the U.S. Over 440,000 manufacturing jobs have been created over the past year alone. More workers means bigger factories, and bigger factories mean higher industrial real estate prices.
According to the NAR and Dean Barber of Barber Business Advisors, the U.S. industrial property market is strengthening.
Following 12 consecutive quarters of unprecedented increases in vacancy, industrial absorption rates have now been positive for six consecutive quarters.
The national average vacancy rate has been steadily trending lower and is forecast to decline further in 2012 and 2013 with the industrial sector being second only behind the retail sector.
A Small Cap REIT With Home-Run Potential
Most of us don't have enough cash lying around to buy commercial real estate so the next best thing is to invest through real estate investment trusts (REITs).
REITs are companies that own and in most cases operate income-producing real estate. Ninety percent of their taxable income is distributed to shareholders as dividends, and in doing so, they pay virtually no corporate tax on both the federal and state level.
If you were a commercial real estate investor, flush with cash, you'd be sitting in the catbird seat.
- Choose the best areas of the country to invest in
- Take advantage of the depressed prices
- Cherry-pick the prime locations
- Feel comfortable about using leverage at these prices
I found a couple of guys, with great resumes, who did just that. They cofounded Terreno Realty Corporation (TRNO:NYSE) in 2009, just as the recession was ending, and took it public in early 2010.
Prior to co-founding Terreno Realty Corporation, W. Blake Baird was president and director of Prologis Inc. (formally AMB Property Corporation) and chairman of its Investment Committee.
He now holds the title of chairman and chief executive officer of TRNO.
Michael A. Coke, also a co-founder of TRNO, serves as president and chief financial officer. He worked with Baird at Prologis Inc. and served as chief financial officer, director, and executive vice president.
Both of these men have very extensive, impressive resumes and were instrumental in the success at Prologis (PLD:NYSE), which is now one of the world's largest industrial REITs.
Needless to say, they left very high-paying jobs to start this new venture so one has to assume they expect big things. And with their background, it sounds like a good bet to me.
TNRO... The Company
San Francisco-based Terreno Realty owns and operates industrial real estate properties primarily in six major coastal markets of the U.S. These include Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington D.C./Baltimore.
The company invests in various industrial real estate, including warehouse/distribution, flex, and trans-shipment. Each of the locations where Terreno Realty has a significant presence is characterized by a well-established transportation network -- seaports, airports, highways and railways that are essential for the swift distribution of goods.
In addition, available land in these markets is scarce, resulting in steep barriers for the development of new and competing properties. Consequently, the company has resisted pursuing ground-up development or land investments. Instead it is focused on acquiring high-quality assets.
The company turned profitable just one year after going public and declared its first quarterly dividend of $0.10 a share last month.
Analysts expect the company to earn $0.68 a share this year and $0.84 in 2013. The dividend yield on the stock is currently 2.8% but the dividend will increase if the analysts are correct.
TNRO... The Stock
Since going public, the stock reached a high of $20.56 in April 2010 and a low of $11.41 in November 2011. A month later it was back over $15. One reason for this volatility is that it does not trade much volume so if you interested in trading this stock, USE LIMIT ORDERS!
The company did a secondary offering of 4 million shares in January, priced at $14.25. A good omen was that all six of the insiders acquired additional stock at the offering price, with Chairman Baird investing close to $500,000.
The stock is currently trading in the $14 area. A move back above $15.80 would be bullish. There is strong support in the $13 area and IF it pulls back to that level, it would be a great entry point.
To your wealth,
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