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Omega Healthcare: A REIT for Growth & Income

08/24/2017 2:52 am EST

Focus: REITS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

We are always looking for super profitable companies that are growing but aren’t too expensive. One of my favorite industries offering growth and income is in healthcare, asserts Mark Skousen, editor of Five Star Trader Alert.

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With an inevitable aging population, the United States just reached a milestone -- over 50 million seniors over the age of 65 and most on Social Security and pension systems.

As they get older, they are also prime customers for assisted living facilities and nursing homes -- a booming industry.

While the cost and quality of assisted living facilities are rising, one real estate investment trust (REIT) that specializes in this area is dirt cheap: Omega Healthcare Investors (OHI). Based in Maryland, Omega Healthcare owns more than 1,000 assisted living facilities both here and abroad.

Profit margins are huge, over 40%. Revenues jumped 21% from a year ago, and earnings rose 63% to $366 million. Analysts expect earnings to increase 16% a year over the next five years.

Omega has increased its dividend 20 times in a row, and its funds from operations (FFO) is strong. Yet it still yields over 8% and is selling for only 14 times earnings.

In many ways, Omega Healthcare is a better deal than it was in 2013, when we first recommended it in my Forecasts & Strategies newsletter.

Back then, OHI was selling for 12 times its Funds from Operations (FFO), which is considered the best measure of profitability of a REIT. Now it’s selling for only nine times its FFO.

Let’s buy Omega Healthcare Investors at market today and set a protective stop of $25 a share. For those more adventuresome, consider buying the Omega Healthcare Investors December $34 call options, which last traded at 60 cents and expire on Dec. 15.

Although the REIT has a larger market capitalization than the stocks I typically recommend in this service, I like Omega Healthcare’s prospects well enough to make an exception for it.

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