Author: Andy Schornack
Covestor models: Financial Services, Market Maven
Although first quarter’s earnings were positive across most of the portfolio, the Marken Maven and Financial Services models’ performance lagged. The market continues to exert pressure on the financial industry despite an improving outlook in both the economy and housing. Earnings will continue to be helped by improving asset quality, therefore reducing reserve requirements, and improving loan demand at the financial institutions across the country.
There were no changes in the Market Maven model in April. The financial services model revisited and started a new position in Investors Real Estate Trust (IRET). Universal Insurance Holdings (UVE) was sold to allow for the position.
The brief thesis is that IRET is an investment in the real estate surrounding the Bakken Shale Oil Boom as well as a rebounding Midwest economy. The company, based in Minot, ND, owns 81 multi-family residential properties consisting of 8,921 apartment units and 184 commercial properties consisting of 12.3 million net rentable square feet, according to this filing with the Securities & Exchange Commission. The commercial properties are office, medical, industrial and retail.
The company has upside potential if it can pick up leasing activity in its commercial office segment, concentrated in the Twin Cities Metro Area, that was 77.9% leased as of January 31, 2012. This compares to the multifamily, commercial medical, commercial industrial, and commercial retail which are leased at 93.2%, 94.5%, 94.5%, and 87.5%, respectively.
Given its new developments in Williston, North Dakota and leases with the oil industry in the area, I believe there may be long-term upside in the stock on top of the 7.27% dividend yield as of May 4, 2012. The company is uniquely positioned in one of the strongest markets in the country thereby allowing it to capture opportunities others outside the market area can’t get their arms around.
The Financial Services Model portfolio is structured to provide dividend income with a target minimum yield of 3%. This provides a stable return of capital that can be redeployed into new opportunities or used to add to existing positions.
