- In my portfolio, I have five groups: Dividend growth, value, REIT, high yield, and growth.
- In today's article, I will talk about my REITs, Value, Growth stocks, and as a bonus, my Crypto holdings.
- There are rules I use to take emotions out of my decisions.
In my last article, I talked about my dividend growth and high yielding stocks and I got some really nice replies from readers. I hope that this article will be well received as well and I will again try to explain the rationale behind my choices and positions. For the people that did not read my first article you can find it here. Anyway, for the people who did not read the first part, I will tell a bit about myself. In this article, I will explore my own portfolio and write about what rules I have for my portfolio. I hope that this will give readers an idea for their own portfolio. Some information about me: I am a 23-year-old investor from the Netherlands. I started my journey in 2018 while I was on exchange in Texas (Angelo State University). Unfortunately, I bought slightly before the drop at the end of the year. Nevertheless, my portfolio's performance has been okay and my dividends have grown to approximately €475 ($562). Every month I try to add €750 ($827) and whatever I earn by writing articles on Seeking Alpha. However, I do not only focus on stocks as I also own some P2P loans on EstateGuru (I am phasing this out and no more liquidity will be added) and cryptocurrency.
To determine which stocks to buy I like to use the K.I.S.S. methodology. K.I.S.S. stands for keep it simple stupid. When I first started investing I bought and sold shares regularly as I did not want to add to any stock that had appreciated more than say 5%. I would add to my losers (even when I did not have a clue what the companies did). When I did my thesis (which is a mandatory part of University here) I decided that it was time to set some rules on when to buy and when to sell shares and my K.I.S.S. portfolio was born.
I noticed that a lot of people my age do not really invest into REITs with the exception of like data centers and weed REITs. However, I am a big fan of REITs (and real estate in general) as a lot of people that ended up extremely wealthy got there through real estate. As I am unable to buy properties myself due to the capital amounts necessary I try to have approximately 25% of my portfolio dedicated to REITs. This gives me enough room to diversify my REITs between different sectors and between different countries. At the moment I own 8 REITs and the rules I have set for them are the following:
- I prefer REITs that are focusing on net lease
- I prefer REITs that grow their dividends
- Growing FFO in the last 5 years
- Net debt/EBITDA under industry average or LTV under 45%
- Investment grade
- Trading at a discount to P/AFFO (or FFO) or Trading at a smaller discount or premium to NAV than usual
So the reason that I want REITs that focus on net lease is that they do not have to pay any cost and just collect their checks. This makes it a lot easier to estimate future cash flows. The others are more like quality checks and valuation checks, which I can use to make sure that the company I want to buy is doing well and that it is trading under its normal trading range. Let's move on to the stocks:
W. P. Carey
Source: Company website
One of the steadiest companies you can find when you look at REITs is W. P. Carey (WPC). The company was one of few REITs that was barely impacted by the pandemic. The company kept its rent collection rates above 90% and grew its dividend during the pandemic (although at a very low rate). WPC is probably not going to grow a lot in the future estimations are around 3% per year and that's okay given the high yield and the fact that it is trading near fair value. Nevertheless, the company has been on a buying spree recently and added properties worth $121 million to its portfolio. Maybe, they will be able to increase the volume in 2021. Especially given that there are a lot of places in Europe that are still in lockdown which could be a good opportunity for a sale leaseback transaction. This will increase FFO again, something WPC has been doing very well in the past 5 years. In 2016 FFO was $519.88 million, while in 2020 FFO was $866.37 million. The company did this without raising too much debt, as the company's net debt to EBITDA was 5.99x at the end of Q4 and that is slightly under the REIT average of 6.1x. Therefore it meets my criteria for investment. However, I do not think that I will add a lot of new money to this position as it is already a big position and it is trading near fair value.
Aroundtown (OTCPK:AANNF) is probably not that well known in the US. It is a German real estate company that mainly focuses on office properties in the Netherlands and Germany. Two countries with some of the strongest economies in Europe (low debt/GDP and unemployment). However, the company also owns properties in multiple other sectors and countries such as the UK and Spain.
Source: FY 2020 presentation
In my opinion, the company has made some very good moves in 2020. The discount to NAV is almost 50% and the company is still able to sell non-core properties over book value. They use the proceeds to buy back shares which are accretive to shareholders. Unfortunately, there was a dip in FFO in 2020 which led to a dividend cut. However, this is nothing to worry about as FFO grew from €165.5 million in 2016 to €932.5 million in 2020. Furthermore, the dividend cut is not a huge problem, as the company is already raising it again by 8 cents (an increase of 57% over the dividend after the cut). This makes the forward dividend yield 3.7%. Debt is also still reasonable at an LTV (loan-to-value) of 34%. As the undervaluation to NAV is so large (it trades at approximately 50% of NAV, while it has traded for a discount of around 20% pre pandemic) I might add to this position even though it is already one of my larger positions due to price appreciation.
Another German real estate company but this one focuses on apartments. Vonovia (OTCPK:VONOY)(OTCPK:VNNVF) has been growing very rapidly in the past years and this is also visible in Vonovia's share price. The company has grown at a CAGR of 15.6% since the end of 2013/beginning of 2014. During the same time, it grew its EPRA NAV per share from €24.22 at the end of 2013 to €62.11 at the end of 2020, a growth of 156%.
There is a difference compared to some of the US peers such as Equity Residential (EQR) and AvalonBay (AVB), the company focuses on cheaper apartments compared to the more luxurious ones from its US peers. This has been a good choice for the company as FFO grew from €760.88 million in 2016 to €1,348.20 million in 2020.
Example of a building Vonovia has units in, located in Leipzig (Germany) Source: Company website
The debt levels might seem excessive at net debt/EBITDA of 14.03x but the LTV is a mere 39.4%. Thus beating my requirements for debt levels. Furthermore, it has also increased its dividends every year since its listing as Vonovia in 2014. It recently increased its dividends by approximately 8% to €1.69. As I recently added twice to this position I will probably not add any additional capital in the coming months, unless it drops 10% or more under its 3-year average P/AFFO (the 5 year is skewed in the dataset that I use).
Source: Company website
I actually bought Boston Properties (BXP) because it was severely undervalued compared to its normal range. I am aware that office buildings might have some problems in the future, but I still think that we will go back to the office (for at least 2 days a week and probably more). The reason for this is that a lot of people will burn out when working from home (because work never stops) and that it is easier to collaborate when you are in the same room as coworkers. Does this mean we will need the amount of space we currently have? I don't know but a lot of people like to have their own space. So we will see what this will mean. I wrote my own ideas about this in an article which you can find here in which I explain a little bit more about why I think that Boston Properties is a good stock to own. Nevertheless, the company is currently trading at a large discount to its usually trading range, although debt is above average at a net debt/EBITDA of 7.51x. The reason I still decided to buy the stock is that it was trading at a very low valuation and according to my calculations the LTV of BXP is below 45% (although the company does not report this themselves, which is normal in the US but different from the EU). As for the dividend, the company has raised its dividend in the past 5 years. However, it is unlikely that they will raise dividends again until the situation with the pandemic gets resolved. I don't think I will add to this position in the near future as there is some risk to the company due to the WFH trend.
A company that was hit hard at the beginning of the pandemic but will most likely make a comeback once we leave the pandemic behind us is AvalonBay Communities (AVB). I briefly touched upon the company already but it is a REIT that focuses on apartment buildings. It does focus on a more luxurious type of REITs, mainly in gateway locations, that usually do well in good times. After the pandemic hit, the share price crashed and it was a good moment to jump in. I wrote an article about why the company will continue to do well which you can find here. To summarize it: once we go back to the office and people move back into gateway locations it will do well again. Furthermore, the fact that the company also develops apartment buildings themselves is also a big plus in my opinion as this gives it more options.
As for the current state of affairs: the company has seen core FFO drop by around 7% and net debt/EBITDA increase to 5.24x from 4.91x. This is a decent performance given the state of affairs and the debt levels still easily beat my requirement. As for the dividend, the dividend has increased for the past 9 years, making AVB a dividend challenger. Unfortunately, Valuation is not as attractive anymore at a forward P/AFFO of 26.42x. Therefore, I will probably not add to the company in the next few months.
Source: Company website
Shurgard (OTC:SSSAF) is probably another REIT that the majority of people on SA have never heard of. Shurgard is basically Europe's version of Public Storage (PSA). The companies were once a single entity but PSA spun-off Shurgard in 2018. PSA still owns around 35% of the shares and the New York Common Retirement Fund owns around 37% of the shares. This makes the available float very limited and could lead to big price movements. I try to use this to my advantage by buying when shares are in the mid to low 30's. I think that this sets me up to do well, especially given that house prices are skyrocketing in Europe, which means that a lot of people have to settle for smaller homes. If people want to keep the same amount of stuff (or maybe even more), they need a place to store it.
As for the fundamentals, the company does not report FFO, but EBITDA grew €121.37 in 2016 to €154.84 million in 2020, a growth of 27.6%. Debt is very low at a net debt/EBITDA of 3.71x and an LTV of only 18.1%. This gives them some room to increase debt in the future if they want to grow more aggressively. The dividend has also grown and was €1.06 over 2020, giving SSSAF a forward dividend yield of €2.68. Valuation is currently on the higher end, but the company has only been public for a few years. For me personally, I am hoping that the company drops back below €36, so that I can add to my holdings. At current prices, I see better opportunities in other companies.
Source: Company website
Another REIT that hasn't been public for a long time is VICI Properties (VICI). The company was spun off from what was then known as Caesars Entertainment (and is now called Las Vegas Sands (LVS)) in 2018. The company has been built to last as its collection rate was 100% through the pandemic. There is one thing that I currently dislike (although the company is working on this): around 83% of ABR is still coming from LVS. Nevertheless, the company has been doing very well as it increased FFO from $523.6 million in 2018 to $892 million in 2020, an increase of approximately 70%. The company also started off 2021 on the right foot as it acquired one of the most iconic hotel/casinos in Las Vegas: The Venetian.
If we look at the debt levels of VICI it did raise significantly during 2020. VICI ended 2020 with a net debt/EBITDA of 7.52x. However, given the growth that the company has seen over the past 2 years, I am willing to let it slide for now. As for the dividend, VICI was one of few REITs that raised dividends during 2020. The company raised dividend by 11% in September and forward yield is 4.78%. The valuation of VICI is a bit on the higher side compared to the past 3 years. However, given the rapid growth and the fact that this is still such a small position I will probably add to this position in the near future.
Source: Company website
Netstreit (NTST) is a REIT that went public during the pandemic. The company mainly focuses on investment grade tenants and rents out properties on a triple net basis, in that perspective, it resembles Agree Realty Corporation (ADC). The company had an occupancy rate of 100% and an average lease term of 10.5 years at the end of 2020. The company is growing quickly and increased gross asset value from $247 million at the beginning of 2020 to $624 million at the end of 2020.
As the company only exists since 2019 and went public in 2020 FFO date is a bit limited. So in this case I can only tell you that FFO grew from $4.3 million in 2019 to $11.8 million in 2020. If the company is able to keep this up in the coming years I expect share price to rise significantly and dividend to grow as well (At the current price forward yield is already 4.42%). Debt should also not be an issue as net debt/EBITDA is decent at 5.78x. Valuation is still decent at a forward P/AFFO of 18.2x compared to 19.56x for ADC.
Source: Company website
Another REIT that is probably not known by the majority of investors is Power REIT (PW). Power REIT is a diversified company that owns railroad, solar power and Cannabis properties. I recently wrote an article about the company which you can find here. To summarize: the company has since 2019 been focusing on cannabis properties and due to the fact that there aren't a lot of investors yet cap rates are high. Furthermore, the company has been growing rapidly and FFO has doubled since the change to cannabis properties. The only thing I dislike about the company is that it does not pay a dividend due to a legal case with Norfolk Southern Corporation (NSC). This created a NOL on their balance sheet and therefore they are technically not making any money. Nevertheless, with more and more states legalizing cannabis, the company will continue to do well. There is one thing that could have an impact on the company: once cannabis is legalized in the US, the rental rate will go down. Nevertheless, I expect the company to do well in the long-term especially given their low WACC (3.82%) and acquiring some properties at a cap rate of 16%. The valuation is on the higher side though and I might sell my position if it goes up a bit more and wait until the cannabis hype disappears.
Growth stocks, some people love them others hate them, I am in-between. I love growth stocks I just never love the price you have to pay for them. I also think it is a lot easier to spot a good value deal than to spot the next Amazon. At the moment I only have 5 growth stocks and the rules I have for growth stocks are the following:
- Grow earnings at least 20%
- Reasonable debt levels
- I expect them to turn net income positive in the coming 3 years
- P/S below 20
The Brazilian PayPal (PYPL) or Square (SQ), StoneCo (NASDAQ:STNE) provides payment services with a focus on small- and medium-enterprises. I initially bought the stock because Berkshire Hathaway (NYSE:BRK.A) bought it and well as I started out and had no clue what I was doing I decided it was a great stock. After repositioning my portfolio I decided to keep the stock as it was a growth stock growing revenues over 50% in the past few years. The only thing I currently dislike about the stock is the fact that it reports in Brazilian Real which has been on the decline. Furthermore, the stock has declined significantly over the past few weeks and although I have still doubled my money I wish I sold at 90 and would have bought back. Revenue did increase by around 27% over the past year but this was a lot lower than I expected due to the fact that Brazil has been hit hard by the pandemic. Debt levels are also still reasonable 3.02x. At the current valuation, I am unsure if I will add, as STNE is almost 5% of my portfolio.
Source: Company logo
My second-largest growth stock position is Prosus (OTCPK:PROSY). I do treat this one a little different and the reason for this is that Prosus is a holding company. I value Prosus based on its discount to NAV and recently wrote an article on it, which you can find here. The company's biggest holding is Tencent (OTCPK:TCEHY) and Prosus owns around 33% of it, this is also the largest percentage of NAV (between 85% and 90%). It also has stakes in Mail Ru (OTC:MLRUY), Trip.com (TCOM) and Delivery Hero (DHERO) as well as a bunch of smaller non-listed companies. I added this position due to the fact that I find it hard to value growth stocks myself and Prosus also gives me the chance to invest in emerging markets. Debt levels are reasonable as Prosus had a net cash position. At current prices, the company is still attractive and there is still a large discount to NAV and I will add to this position in the coming months as long as the discount remains above 15%.
Source: Company website
My third largest position is CareCloud (MTBC). The company recently changed its name from MTBC to CareCloud to, according to them, better represent what the company is doing. MTBC is a company that focuses on software in the healthcare industry. They have been on a roll and have made multiple acquisitions in the past few years. The company usually acquires a company and then outsource some of the tasks to Pakistan. This leads to lower costs and improves the performance of the acquisitions. This has also increased revenue very quickly from $10 million in 2013 to $105 million in 2020. The company is still relatively cheap at a forward P/S of 0.85, especially compared to Teladoc's (TDOC) P/S of 13.42. Debt levels are very low at a negative net debt/EBITDA of 1.79x. At current prices, I will most likely add to this position in the coming months.
Source: Company website
This might be a bit of an odd choice for some readers but in my opinion, Disney (DIS) is a growth stock. The reason for this is that Disney+ will boost the company's revenue. Obviously, it is a lot harder for DIS to beat my threshold of 30% revenue growth and I am willing to wait a few years to see if the company is actually able to achieve this. The reason I think the company is able to do this is not because Disney+ itself will increase the revenue by 30% but rather the data DIS can collect from its own platform. Some economists have said that data is the new oil and although I am not necessarily agreeing with them, it will be very valuable in the future. If DIS uses the data to upsell or to keep people hooked on their IP, then there is a big chance that we will see an increase in revenue. Will it be 20%? I don't know. Nevertheless, debt is somewhat reasonable at a net debt/EBITDA of 4.22x. Valuation isn't crazy based on a forward P/S below 5, easily beating my threshold. I did recently sell some of my stocks in Disney when it reached $200 and the reason for this is that I expected that Disney was getting ahead of itself based on the reopening after the pandemic. Since then, shares have fallen below $190 and look a lot more compelling. At current prices, I might add to this position but since my average cost (approximately $112) is a lot lower than the current price I might wait a bit longer.
Source: Company website
This one is a lot less known than Disney and is listed on the London Stock Exchange, but does have some OTC ADRs. THG Holdings (OTCPK:THGHY) is the owner of multiple eCommerce websites such as Myprotein, LookFantastic and recently acquired Dermstore. However, this is not the reason that I own the company. The company also operates THG Ingenuity and that is the part that is interesting according to me. I wrote about THG Ingenuity and you can find that article here. With THG Ingenuity the company tries to help other companies with running a website, logistics and marketing. It has partnerships with some of the biggest brands such as Disney, Nestlé (OTCPK:NSRGY) and Nintendo (OTCPK:NTDOY). If we would compare it to platforms such as BigCommerce (BIGC) and Shopify (SHOP) the company is trading at bargain prices. However, the company has only been public since last year and share price has been very volatile.
Revenue has been increasing approximately 200 million pounds a year over the past 2 years. This is a bit higher than the 20% that I want to see. Debt levels are low at a debt/EBITDA of -1.15x. Valuation is also still reasonable at a PS of 4.6. At current prices, I will probably add to my position in the coming months.
Sometimes I come across stocks that don't really fit any of the other segments that I have and if they are trading at low valuations I will stick pick them up. They will then go into my value bucket. There are some rules for my value bucket and those are:
- Stocks need to be undervalued based on their past E.G. dividend yield theory or P/E or similar
- There should be an opportunity to go back to previous high (look at particular reason, why did the market punish them?)
- Preferably pays a dividend
- Investment grade credit rating when market cap is over 500m
Source: Company website
The first stock I own in my value bucket is CVS Health Corporation (CVS). My own first experience with CVS was when I went on a project in Los Angeles with my university. Well, I can tell you one thing my white skin, the sun and cycling during the day are not the best combination. To protect my skin I went to CVS and bought factor 70 (this was a bit much but okay). Anyway, I thought that it was a bit weird that a pharmacy was selling so much food items but did buy a few snacks (I mean the options you have in the US compared to what we have here is amazing). Anyway, when I saw that CVS was trading in the low 50's down from over $100 I was wondering why and found that the market wasn't too happy with the amount of debt that came with the Aetna merger. I thought about the synergies that could take place when you have a business such as CVS and add an insurance company to it and thought the market was wrong in punishing CVS for that. Therefore, I started picking up shares in the company. Since my first purchase shares are up around $20. Debt levels have been going down and are currently at a net debt/EBITDA of 3.48x (down from 5.24x in 2018). Furthermore, if debt goes down a bit more the company will also start increasing its dividend again. Valuation is still reasonable at a forward P/E of 10.15x and an average forward P/E of 13.25x.
Source: Company website
A company that is in a business that is unexciting to say the least. Jerash Holdings (JRSH) manufacturers clothes for big brands such as the North Face (VFC) and Costco (COST). They have an advantage over other manufacturers due to the fact that they are manufacturing in Jordan. Jordan has trade agreements with both the EU and the US. This means that they can deliver the best products possible without cutting corners to lower the import cost. The reason I added this company to my holdings is that at the time I started purchasing the stock it was trading at approximately 2 times cash and a P/S of approximately 0.6, while having low debt. The company also had a new board member in Bill Korn who has been a master in acquiring companies and integrating them into MTBC. At current price the forward dividend yield is 3.37% which comes down to 20 cents per share. Debt levels are very low with a negative net debt/EBITDA of 6.08x. It is currently trading at the top of its valuation range at a forward P/E of 12.04x compared to the average of 9.74x. However, given that the company is looking to grow, capacity is booked until summer and that they have low debt and high cash I expect the earnings to increase significantly in the coming few years.
A small cap from my own country and not trading as an ADR is NEDAP (Nederlandse Apparatenfabriek or Dutch Machine factory). The company has 5 segments: Retail, Healthcare, Light Controls, Livestock Management, Security Management and Staffing Solutions. 2020 was a tough year for the company but the recently announced new strategy should lead to more growth in the coming years. The reason I invested in NEDAP is that the company has a high ROE and ROIC (10+ in every year except for 1 in the last 10 years) and the WACC is decent at 5.1%. The share price was also low when I started nibbling but has increased rather quickly over the past few months.
At current prices the company pays out a forward dividend yield of approximately 3.63%. However, dividend payments vary a lot per year but have been in the €2.25 to €2.50 range for the past few years. Debt levels are reasonable at a negative net debt/EBITDA of 0.36x. At the current share price the stock is not in value territory anymore and I might sell the stock soon (I only own a couple of shares and as I won't add at this price I feel like capital recycling might be a better idea).
Source: Company website
The last company I have in my value group is Brookfield Asset Management (BAM) and you might think how is BAM a value company? Well, BAM itself might not trade in low value territory but its main focus is on undervalued stocks/assets. I treat BAM as a (value) fund. I think that Bruce Flatt has been an outstanding CEO over the years and I expect the company to do well in the coming years. The dividend is on the lower side at a forward yield of 1.15%. Debt is on the higher side with a net debt/EBITDA of 9.81x but the company has had a high debt for a longer period of time now. At the current share price, I might add to it as it is still trading below its average P/AFFO.
Besides my stocks I also have smaller more speculative positions in crypto. The reason for this is that, if it does blow up I at least profit from it. However, I see this more as gambling money and therefore only put approximately €50 each month (which I divide over 4 cryptocurrencies). I currently own 5 different kinds of cryptocurrencies: Bitcoin (BTC-USD), Binance Coin (BNB-USD), Hedera Hashgraph, Reef and CarVertical. The reason why I own these coins specifically differs per currency and I will walk through all of them very quickly.
Bitcoin is the most popular cryptocurrency out there and people have compared it to virtual gold. Although I am not 100% convinced by Bitcoin due to the outdated technique it does have a well-known name and this will probably mean it outperforms in the short to medium term.
Source: Company website
Binance Coin is the coin of one of the biggest crypto exchanges called Binance. The exchange gives you a discount if you use the coin and also gives you the possibility to exchange small amount of other cryptos directly to Binance Coin. As this is one of the largest exchanges the coin will probably be used a lot, creating significant demand and will lead to rising prices.
Source: Coin website
Personally my favorite currency and backed by some big names such as Boeing (BA), Alphabet (GOOGL) (GOOG), Avery Dennison (AVY) and IBM (IBM). Hedera is technically not based on blockchain and therefore some people argue that it is not a cryptocurrency. Furthermore, by having a lot of big companies in their council a lot of people that are in crypto are against it. Nevertheless, Hedera has one of the lowest costs and can handle over 10.000 transactions per second. Recently, eftpos - an Australian payment systems provider owned by some of the biggest banks in Australia - announced that they were running a node for micropayments on Hedera Hashgraph. If this is successful I expect more companies to follow.
Source: Coin website
A smaller and more recent Cryptocurrency is REEF. REEF tries to make DeFi (Decentralized Finance) easy for everyone that is interested. You can lock the coins in a bond that will then pay you out in either REEF or a different currency. It also works on making baskets with crypto (kind of like a fund), in which you can invest your REEF. If the company is successful it will help new investors to get yield on their crypto without all the hassle that is sometimes necessary.
Last but not least there is CarVertical. CarVertical was initially based on a model that resembles Carfax. Due to the fact that data is sometimes altered they wanted to put the data on the blockchain. The reports would then be bought by the coin. This idea has since changed and the creators of CV are now working on DVDEX, which is a Decentralized Vehicle Data Exchange. If this is successful they will use the coin to buy the data that is necessary to make a report with the coin (they will do this in the background, so you don't need to buy the coin for this). If this is successful I think that the coin will rise significantly as it will be easy to get data based on VIN number, even when it is imported from a different country.
This article was written by
Analyst’s Disclosure: I am/we are long ALL STOCKS ELABORATED ON IN THIS ARTICLE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I own the European tickers of European companies and not the ADRs
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.