Two More High-Yield Opportunities

 | Sep 19, 2013 | 3:00 PM EDT  | Comments
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sbra

,

lgp

Federal Reserve Chairman Ben Bernanke upended the market consensus Wednesday when he announced that the central bank did not believe economic evidence was strong enough yet to warrant any sort of stimulus taper. The decision rallied the market and the punch bowl will remain full for the time being. Commodity stocks and emerging markets were particularly strong as commodity and precious metals shot up in the aftermath of the announcement.

In addition, high-yield sectors that have been hurt in recent months posted strong gains. Buying these beaten down high yield real estate investment trusts and energy limited partnerships has been a core theme in my columns over the last month. I never believed rates on the 10-year Treasury yield would go much past the 3% level in the near term. Economic and job growth was just too tepid to support higher rates. It seems the Federal Reserve has now and confirmed my thesis.

Given this, I believe these sectors will provide good yield and nice capital appreciation as yields head down to at least the 2.5% level. Here are a couple of more plays in these sectors that offer good yield and reasonable valuations at these levels. Insiders have been recent buyers of both.

Sabra Health Care (SBRA) operates as a REIT in the U.S. The company owns and invests in real estate properties for the healthcare industry. Its property portfolio consists of more than 80 properties, most of which are skilled-nursing homes. The company is well positioned for an aging population.

This REIT has a healthy yield of 6.1% at its recent stock price under $24 per share. The stock is down more than 20% from its recent highs as rising interest rates provided a substantial headwind to most REITs. The company has a solid balance sheet with staggered debt maturities, most of which are scheduled out past 2018.

Funds from operations track to a better than 20% gain this year, and analysts project another 15% to 20% increase in 2014. The shares change hands for less than 12x forward FFO, a discount to its five-year average of 21.2. Jefferies upgraded the REIT to Buy from Hold on Wednesday. Several insiders made purchases at higher levels in mid-August.

Lehigh Gas Partners (LGP) is a limited partnership that engages in the wholesale distribution of motor fuels to gas stations, truck stops and toll road plazas in the U.S. Insiders have been very active in this high-yield opportunity, buying almost $1.5 million in new shares since mid-August.

The company came public in late 2012, so analyst coverage is thin. The company has already raised its payout since its debut, and the shares yield a robust 6.6%. Revenue growth should come in between 8% and 10% for both this fiscal year and 2014. This company operates in the same fuel logistics space as Global Partners (GLP), which I own.

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