Equinix » EQIX // Real Estate Sector // Strike Price = $xx {subscribe}
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Data is the new oil as they say, and data needs to be stored en masse so it can be scrubbed, massaged, provoked and utilized.
EQIX provides data centers globally for some of the big players in data creation and crunching. The company itself gets filed in the Real Estate sector. REITs are supposed to be the bastion of stability and dividends, but it’s still best to buy on sale as there is some volatility in this particular space. Data centers are a separate industry to commercial real estate. Instead of being caught in a work from home headwind, they are floating in the AI bubble.
We would like to make our Strike Price about $600 for approximately a 25% MoS on its intrinsic value. However, we think the bull will march on so we have decided on a different Strike Price.
If the stock goes 10% above its Sep 2021 all-time high of $885 it would get to about $975. If the next bear market drops it 25% that would take it to about $730. For reference, this past bear market dropped the stock 44% and Covid tanked it 27%.
The bottom line is this is a quality business but it is at least close to fully valued and it’s not that great a business that long-term investors who want to outperform the market should pay over intrinsic value for. Ya just never know when the hammer is coming for your stock or the whole market. Not buying high protects one from the hammer. To maximize your returns, as an investor busy with real life, use patience in the buying and selling process.
The dividend yield is currently about 1.7%. Solid. And it has grown about 8% annually the past 8 years. But it doesn’t seem to us to be enough of a return to justify not buying this stock on sale.
Despite the AI secular tailwind there are signs the growth is slowing a bit and margins are getting thinner as maintenance CapEx is high when it comes to state-of-the-art servers and your mega cap customers can afford to squeeze you for the best lease rates.
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