Omega: A Bargain REIT

04/13/2017 2:50 am EST

Focus: REITS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

In Los Angeles at the American Association of Individual Investors, I told the audience that Omega Healthcare Investors (OHI) is one of those few undervalued stocks in an overbought market. 

Omega is a real estate investment trust (REIT) that invests in skilled nursing and assisted-living facility operators in the form of triple-net leases. 

It operates with a hands-off-approach by collecting rent from facility operators that remain responsible for property taxes, maintenance and insurance. Funds from operations (FFO) have been increasing sharply. 

FFO jumped 30% in the past two years to $3.42 a share. OHI has increased its dividend for 19 quarters in a row. Yet the stock price has languished over the past three years in fear of higher interest rates and a potential slowdown in Medicare payments. 

It sells for 13 times expected earnings and has a price/earnings to growth (PEG) ratio of 0.98. Anything less than 1 is considered a bargain opportunity. I firmly believe our patience will pay off and OHI will soon reflect its true value. Meanwhile, the stock provides an 8% yield.

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