Three Stocks to Watch for the Week of February 21st, 2022

Stocks declined for the second week in a row last week as military tensions at the Russia – Ukraine border continued driving market volatility, causing investors to flee stocks in favor of traditional safe-havens like bonds and gold.  These geopolitical tensions come to a market already under pressure from surging inflation and rate-hike expectations. The Dow sank 1.8% for the week, the Nasdaq lost 1.7%, and the S&P 500 finished 1.5% lower.  

The week ahead will be a short one.  U.S. markets are closed for the Presidents Day holiday on Monday.  Market watchers can expect quarterly earnings results from Home Depot (HD), Moderna (MRNA), Coinbase Global (COIN), and more.  We’ll also get clues about how skyrocketing inflation is impacting American consumer habits on Friday when the University of Michigan releases its final reading of its Consumer Sentiment Index for February.  With so many looming question marks, volatility will likely carry into the holiday-shortened week ahead.  Our team has a few recommendations of tickers to put on your radar for the coming days.  

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With so much market turbulence in 2022, investors have been seeking shelter among so-called “safety trades.”  Stocks with relatively low volatility that come along with a dependable payout can bring peace of mind during uncertain times.  Today we’ll focus on one such stock.  

Boston-based, Information management services company Iron Mountain Inc. (IRM) provides information destruction, records management, and data backup and recovery services to more than 220,000 customers in 58 countries.  The company has around 1,500 leased warehouse spaces and underground storage facilities around the world. 

As a testament to Iron Mountain’s leadership in its core business of storage, the company serves 225,000 customers, which includes about 95% of the Fortune 1000 companies.  As for what the company stores, the wills of Princess Di and Charles Darwin housed in their facilities and the original recordings of Frank Sinatra and Bill Gates’ Corbis photographic collection.   

The need for Iron Mountain’s physical facilities will likely never disappear, but as digital storage becomes more widely adopted, the company should continue to grow along with its global data-center business, which contributed 8% of adjusted earnings through the first three quarters of 2021.  The company and analyst community alike see the data center as a driver of steady growth in the coming years.  

During its Q3 earnings call, Iron Mountain blew past consensus expectations of $0.70 FFO (funds from offering) per share, reporting $0.90.  “Our Q3 performance demonstrates the continued strength of the business throughout the year, driven by our broad offerings, deep customer relationships, resilient business model, and strength of our team,” said CEO William Meaney. “Our Mountaineers have been executing well despite what continues to be a challenging environment, and we are pleased to continue to drive accelerated growth with continued strong uptake in our digital and SITAD offerings resulting in 19% year over year growth, strong storage growth of 3.2% with positive organic volume, and continued momentum in our Data Center business, which is well on track to deliver bookings in excess of 30 megawatts for the year.”

Iron Mountain forecasts that 2021 revenue will increase 7.5% from 2020 to about $4.47 billion.  And the company also believes that its AFFO per share for this year will surge 10% from the previous year to about $3.39.  Based on that projection, the payout ratio for its 5% dividend yield will be around 73%, allowing the company to retain the capital necessary to expand its data-center business even as it rewards shareholders.

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Onsemi dazzled market watchers with better than expected Q4 numbers.  The company reported $1.09 earnings per share, indicating a positive growth rate of 197.1% from $0.35 EPS reported for Q4 2020.  What’s more, EPS win surged past analysts’ consensus estimates of $0.94. The business had revenue of $1.85 billion for the quarter, compared to the consensus estimate of $1.79 billion. 

“Our disciplined execution on transformation initiatives in 2021 resulted in record financial performance and achievement of our financial targets ahead of stated timeline. Revenue for 2021 grew 28.3%. Operating income and free cash flow increased 6 times faster than the revenue as we focus our portfolio on secular megatrends of electric vehicles, ADAS, alternative energy, and industrial automation. We continue to expand gross margins as we shift our mix into these high-value strategic markets while ramping new products, rationalizing our manufacturing footprint, and improving our overall cost structure. Outlook for our business remains robust as evidenced by over 60% year-over-year growth in our design win funnel driven by our highly differentiated intelligent power and sensing portfolio,” said Hassane El-Khoury, president and CEO of onsemi.

The pros on Wall Street give ON a Buy rating along with a median price target of $73, representing a 22% increase from where the stock closed on Friday. 

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Last up is a real estate investment that will appeal to readers seeking value and growth.  STAG Industrial, Inc. (STAG) is a real estate investment trust focused on the acquisition and operation of single-tenant, industrial properties throughout the U.S.  The company currently owns 517 properties across 40 states with 103.4 million square feet of space.    

STAG is active across all aspects of the industrial real estate market, including owning light manufacturing properties and flex/office space.  Because these properties are essential to their tenants, STAG was able to collect nearly all the rent billed last year.  Flex/office space is a market estimated at $1 trillion of properties in the U.S. alone.  With just a 0.5% share of that market, STAG has plenty of room to grow.  

STAG’s portfolio is continually expanding through acquisition.  It will often purchase value-add properties and leverage its substantial leasing and redevelopment experience to increase shareholder value. Over the next five years, it plans to spend $800 million to $1.2 billion on property purchases.   

Thanks to this acquisition strategy, the company’s payout has been slowly but steadily increasing.  Given the REIT’s aim to invest billions in expanding its portfolio over the next five years, that trend should continue.  The stock sports a comfortable, 3.4% yield paid out monthly, making it even more attractive to income-seeking investors.  

STAG has developed an investment strategy that helps investors find a powerful balance of income plus growth.  That income with upside makes them a great high-yield REIT to consider adding to your portfolio.  

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