American Homes 4 Rent (AMH)
From Cabot Wealth Advisory 7/17/14 Sign up for Cabot Wealth Advisory—it's free!
I'm a growth investor at heart, so the next idea really gets me excited, and part of the reason is that I’m not talking about a broad industry group. In my experience, some of the best stock picks tend to come from entirely new industries—think satellite radio, robotic surgery, single-serve coffee brewers and even the iPad, which was an entirely new type of computer.
The trend I’m talking about isn’t necessarily changing the way we work and live, but I do believe it, for better or worse, it's the way of the future.
I’m talking about the trend toward renting houses instead of buying. And these aren’t vacation rentals or houses around a college campus (I still remember my $210 per month rent junior and senior year!), but nice, newer houses smack dab in the middle of solid communities.
Whereas 15 years ago, all the talk was about the growing share of Americans owning their own homes, two stock market crashes and the real estate debacle have kicked off what looks like a new trend—adults and families renting for years and years while they build up enough savings to plop down on a house of their own.
American Homes 4 Rent (AMH) (technically a REIT) seems to be leading the space. The firm actually goes out and buys tranches of mortgage debt that’s usually delinquent in some sense. The company generally tries to get borrowers current on their loans, but if that fails (and it often does), it's happy to take the houses! Then the company renovates them and rents them out. It’s literally like being a landlord, but with a national focus and deep pockets.
These are not slummy places we’re generally talking about—yes, there will always be demand for lower-quality homes, but the “new” demand, the trend that’s taking hold, is the married couple with one child that doesn’t have the money or credit score to buy a $350,000 house. So, instead, they rent, paying $1,500 per month for a few years while they sock their savings away. (I also wonder if more travel and job insecurity is leading to more rentals, but I digress.)
At the end of April, American had 21,973 homes leased, with another 4,000 or so owned but not leased. But many of those are under renovation—of the houses that have been on the market for at least 90 days, the occupancy rate is a whopping 95%. And the company remains busy on the acquisition front, most recently buying up Beazer Homes’ rental division, adding 1,300 homes to its tally.
Sales and cash flow growth have been big in recent quarters, and the stock pays a modest dividend just north of 1% annually.
I’m not actively recommending the stocks for a couple of reasons. AMH is too thinly traded and the stock really isn’t outperforming the market to any great degree.
But this isn’t about what’s going to happen over the next week or month; I think a mega-trend toward renting is underway, and could boost these or other stocks that emerge in the industry in the years ahead. If nothing else, put the idea on a sticky note and see if AMH develops strength in the quarters ahead.
For more information on Cabot Top Ten Trader, click here.
|American Homes 4 Rent (AMH)
30601 Agoura Road, Suite 200
Agoura Hills, California 91301
|Index Membership: N/A
Industry: REIT - Residential
Full Time Employees: 430