Data Centers: Get Ready to Pounce?

05/12/2020 5:00 am EST

Focus: REITS

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

The Federal Reserve has pledged to print whatever is necessary to bring the American economy to a full recovery; it actions are historic and their speed is unprecedented, asserts Bryan Perry, editor of Cash Machine.

While the Fed has provided a base-camp-like put under the market, this doesn’t mean the S&P can’t retest to 2,600, where the long-term moving average sits. This is, in my view, a very plausible scenario that will play out over the next several weeks.

Assuming the economy is on a path to a U-shaped recovery and interest rates and bond yields are down for the count, investors who are seeking income will have a second shot at buying highly defensive dividend stocks and best-of-breed dividend growth stocks in the coming weeks.

And, I would emphasize that those who are seeking the highest quality yields should focus squarely on REITs where yields compete with utilities, but also offer higher revenue and earnings growth.

Within the broader REIT space, the data center REITs rocketed off the late March lows, including Digital Realty Trust (DLR), QTS Realty Trust (QTS), CoreSite Realty Trust (COR), CyrusOne (CONE) and Equinix (EQIX).

This is because one of the good things about data center REITs is that their growth isn't dependent on consumers spending money.  There is also a compelling fundamental case for continued secular growth in data center REITs.

5G will drive an increase in data traffic, owing to the rising adoption of internet of things (loT) devices and big data analytics, as well as the growing consumption of online video and audio content. This demand for multi-cloud strategy and the advent of 5G technology will lead to the rapid expansion of the global data center market.

To sum it up, if we do get the deep pause in the market and these overheated data center REIT stocks witness a meaningful pull back on their respective share prices, then consider committing some income-oriented capital to this REIT sub-sector that is hitting on all 5G cylinders and will continue to do so for the next three years.

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