Whenever I need inspiration for a new stock idea, I think about Levi Strauss.
Yes, Levi Strauss — the man who invented blue jeans. As a scrappy European immigrant to the land of opportunity, Strauss went West during the California Gold Rush in the mid-1800s seeking his fortune. But he didn’t go as a prospector. Instead, Strauss made his first fortune selling pick axes, shovels and other supplies to 49ers who were in search of gold. His second and much larger fortune was made when he decided to make pants out of tent canvas, dye them blue with indigo and sell the durable outerwear to would-be gold miners.
Simply put, Strauss was an expert in finding trends and profiting from them.
This kind of savviness reminds me of a company I’ve followed for more than a decade now. I’m talking about Senior Housing Properties Trust (NYSE:SNH), a real estate investment trust (REIT).
And I like this company particularly now, because it’s seizing a huge opportunity to make a lot a of money.
Let me explain…
As 10,000 people in the United States turn 65 every day, they’ll need somewhere to go as they get older and need more care. Senior Housing manages a $6.2 billion portfolio consisting of nearly 400 properties that include senior-living centers, skilled-nursing facilities, medical office buildings and wellness centers across 42 U.S. states.
Obamacare headwinds? Fuggedaboutit
Considering the rapidly-changing landscape of U.S. health care, it’s easy to see why Senior Housing could face significant headwinds at first glance. After all, the largest portion of the nation’s aging population still heavily relies on government subsidies such as Social Security and Medicare to help pay for senior lifestyle and care facilities. In this sense, a health care REIT would likely be negatively affected by slow government pay and the fiscal uncertainty of federal entitlements.
But that’s not the case with Senior Housing. About 94% of Senior Housing’s net operating income comes from private-pay properties. This means tenants pay out of their own pockets, rather than relying on a government subsidy or voucher system. So the company’s dependence to government reimbursement (and the uncertainty that comes with it) is extremely limited. In addition, about 31% of the properties are multi-discipline medical office buildings with blue-chip health care tenants such as Stryker Corporation (NYSE:SYK), Boston Scientific Corporation (NYSE:BSX) and Quest Diagnostics Inc (NYSE:DGX).