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>>> IBD 50 Stocks To Watch: Marijuana Stock Innovative Industrial Shapes A Base In Transition



Investor's Business Daily

ALAN R. ELLIOTT

07/22/2020


https://www.investors.com/research/marijuana-stock-innovative-industrial-shapes-a-base-ibd-50-stocks-to-watch/?src=A00220&yptr=yahoo


Marijuana stocks don't often make the IBD 50 Stocks To Watch list. But Innovative Industrial Properties (IIPR) is a different sort of marijuana stock, and is approaching a buy point in a base that may be in transition.

The stock has been a highflier. And, like most marijuana stocks, highly volatile. It's gained 377% since its December 2016 IPO. On Wednesday, it was also trading 32% below its year-ago high. At the same time, it had a year-to-date gain of 26%.

Innovative is a real estate investment trust. That is a business model that frees real estate-focused companies from the usual federal corporate taxes, so long as they return their free operating cash flow to investors in the form of a dividend. Dividends in the group can therefore be high yielding. Innovative's current $4.24 annual dividend yields 4%.

REITs have provided an interesting way to focus on unique segments of the economy. San Francisco-based Prologis (PLD) concentrates on logistics-related properties, many of which are warehouses for e-commerce distribution. Equinix (EQIX) buys and leases high-tech sites necessary for internet networks and content providers.

Innovative Industrial is maybe even more cutting edge. Most of its properties are specifically used to grow medical-use marijuana. It generally buys the buildings and properties from the pot growing companies, then leases them back. Innovative is, in effect, a landlord for pot growers.

Innovative launched a 3-million-share offering on June 29 that raised $295 million. A July 6 note from Roth Capital said the company appears to see plenty of room to expand its portfolio. Roth projected the $295 million would go toward a wave of new property purchases over the next couple of quarters. The goal, Roth points out, is to grow the asset base as quickly as possible before federal regulations shift in a way that will open broader bank financing options to the industry.

For now, Roth says, "the sale-leaseback model remains the nondilutive capital raising method of choice for many operators and (Innovative Industrial) remains the industry leader with unmatched access to capital compared to its peers."

Given the fresh capital on the company's balance sheet, Roth projects year-end adjusted funds from operations of $4.88 per share for 2020, and $7.23 for 2021. It also projects earnings per share of 84 cents for the second quarter, a 42% gain — far better than most marijuana stocks. Innovative Industrial has grown earnings and sales at a triple-digit pace over the past three quarters.

Innovative is due to report its second-quarter results after the market closes on Aug. 5.

On The Cusp Of Two Bases

The stock chart shows it shaping a handle on a deep, five-month cup base. If the marijuana stock remains below the 101.58 buy point through the end of the week, the handle will become a flat base on its own. The buy point would remain the same.

Technically, the cup base is flawed by its depth, and by the fact that most of the pattern formed below the stock's 10-week and 40-week moving averages. These signal potential weaknesses. The handle is much tighter, and shows the stock settling down after the bear market.

The handle also is forming entirely above support at the 10-week and 40-week lines. This is also a positive. For those reasons, it would be better if the handle morphs into a flat base.

In any case, if Innovative crosses above the 101.58 entry, it is a buy.

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