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The Insiders Are Buying For Income

By Stansberry Research Interview Series
Monday, June 4, 2007

To anyone who simply reads the headlines, the current standing of the real estate industry remains elusive.
 
Throughout the last 18 months, the mainstream financial press has thrown the phrase "housing bubble" around as if it's going out of style.
 
However, if you've been reading some alternate views on the issue – like our essays on Nashville – you know that I find that analysis to be overly simplistic, if not outright wrong.
 
The media likes to simplify things. And it's a lot easier to say there's a nationwide housing slump than to bother investigating specific housing markets for price trends. Having done the latter, I've been bullish on Southern real estate for some time – particularly in the Nashville, Charlotte, and Austin markets.
 
So it was no surprise to me that the South topped April's list of new home sales by region. Nationwide, new home sales in April jumped 16%: the biggest single-month increase in 14 years. New home sales in the South were up 27%.
 
Part of this jump can be attributed to an actual nationwide trend: migration. As home prices on coastal cities have soared, young professionals have been packing up and moving inward to cities such as Nashville, where the cost of living is lower. Today, one in four downtown Nashville residents comes from out of state. The vast majority of these individuals are young, educated professionals between the ages of 26 and 32.
 
Honestly, who in his right mind wouldn't move? Why pay $3,000 a month for an apartment in New York when you can pay one-sixth of that to live in a smaller city with music, arts, and better job growth?
 
Between the doom-and-gloom headlines on housing and the subprime mortgage meltdown, most any company related to the real estate or homebuilding industries has had a hard time in the last four months. The Real Estate ETF (IYR) is down 15% since its February 2007 high.
 
 
This selling panic has created some fantastic opportunities for more discerning investors. Insiders in these sectors have been buying shares in their own companies hand over fist. In fact, real estate investment trusts (REITs) have been at the top of insider purchases lists for a month now.
 
Because real estate stocks are currently trading at depressed levels, investors have the opportunity to lock in higher yields relative to their buy price. When you see the current yields on some of these stocks, it's small wonder the insiders are loading up.
 
Company
Symbol
Yield
Purchases
Thornburg Mortgage
TMA
9.8%
$5 million
Resource Capital
RSO
9.7%
$2 million
Newcastle
NCT
9.2%
$24 million
JER Investors
JRT
8.6%
$2.36 million
Centerline Holding
CHC
8.5%
$9 million
 
Today, you have the opportunity to buy virtually double-digit yields on some of the safest and best-run real estate companies in the world. Once the rest of the financial industry starts looking for the misplaced baby in the discarded bathwater, you’ll see some capital gains added.
 
Good trading,
 
Graham




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Market Watch
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52-Wk
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52-Wk
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52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%