Strategies & Market Trends : Value Investing

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To: Grommit who wrote (60128)12/31/2017 2:16:23 AM
From: Paul Senior1 Recommendation

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CONE, data center reits. They continue to expand. Positive mention in today's Barron's from Altegris Real Estate Fund manager

About 21% of the fund’s assets are in data centers, which it has owned since launching the fund. One of its largest holdings is Equinix (EQIX). It’s the biggest operator by far, with some 190 centers in 24 countries. Data centers are expensive to build, he says, but Equinix recoups its investments quickly; its net operating income per data center is about 30% of its building cost, he says. “In the data-center business, there are basically six owners,” says East, who also counts CoreSite Realty Group (COR), CyrusOne (CONE), and QTS Realty Trust (QTS) among his larger positions. “It isn’t impossible, but it is difficult to add more space; you need to have cheap electricity, a fiber-optic rich environment, and security and compliance.” Meanwhile, demand for data storage is growing more than 25% a year, and several trends are converging to further drive demand. More people are accessing more data from more devices and for more uses. “An autonomous car uses about 3,000 times more data than [the average] person uses in a day,” he says.

I sold some DLR earlier this year because I bought it mostly for its yield, and as it grew the yield dropped and became unattractive. Reconsidering it again a few months later, I reframed my view of it (and the other data center reits) to be growth vehicles with a small dividend yield, and so I added back some shares.

I've now looked at CONE which you mentioned. I hope these stocks still have growth ahead of them. CONE and EQIX stock prices seem to move in tandem, and both companies seem to have similar growth trajectories and metrics. I'll diversify my bet on DLR with a small purchase Tuesday of the much smaller CONE.

Maybe for reit buyers the distributions (yields) are unattractively small. And maybe for growth seekers, why buy a reit? So maybe there's some underowning of these. Otoh, it's no secret that data centers are growth opportunities, so maybe these stocks are fairly priced now. Back otoh, if the pundits are right and the data center market isn't saturated, these stocks could continue to do well.
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