Innovative Industrial Properties is the IBD 50 Stocks To Watch pick for Wednesday. Innovative is a pot stock with a difference, as it focuses on providing the land to grow the crop. The marijuana stock is up 284% on its coronavirus crash lows.
Innovative is a real estate investment trust that focuses on the cannabis industry. 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 annualized yield is currently 2.7%. This beats the S&P 500 average yield of 1.6%.
Pot Stock Analysis
The stock has formed a three-weeks-tight pattern, which offers up a buy point of 165.09. This is a pattern that gives investors the chance to add shares. The first time an investor should buy a stock is when it clears the proper buy point of a base pattern. The follow-up buy should only be a fraction of the full-size position, such as one-eighth or a quarter.
IIPR stock is well clear of its 50-day moving average, which is a bullish indicator. In addition, the relative strength line has been generally making progress. However, it has leveled off as the stock pauses.
The pot stock has a very strong IBD Composite Rating of 93. Stock market performance is key to this, with its Relative Strength Rating a healthy 92. The stock is up 104% so far in 2020.
Earnings are growing at a decent clip, with EPS swelling an average 86% over the past three quarters. However, it slowed to 49% growth in the most recent quarter.
Big institutional money is buying into the stock, which is an important consideration for the CAN SLIM investor. It boasts an Accumulation/Distribution Rating of B, which represents moderate buying among institutions.
Noteworthy holders include the American Century Small Cap Growth Fund (ANOIX) and the Wells Fargo Fundamental Small Cap Growth Fund (EGRYX). These are both rated as being among the best performing funds by IBD research.
This Move Lifts Marijuana Stocks
Pot stocks rallied after the General Services Administration said it would make resources and services available to help President-elect Joe Biden begin his transition to the White House. That process had been delayed while President Donald Trump contested the election results.
Trump said he would continue to challenge the results. But he recommended the GSA to "do what needs to be done with regard to initial protocols," and said he had "told my team to do the same."
Investors have generally seen Biden, a Democrat, as being more favorable to federal cannabis reform. Marijuana stocks surged leading up to and after the election, which saw more states legalize it, too. But some analysts have tried to temper expectations.
Analyst Rates IBD 50 Stock
Piper Sandler analyst Daniel Santos is rating IIPR stock as overweight with a 160 target. He believes there is plenty of room for growth ahead for the marijuana stock.
"The clear winner this election was IIPR as major states like (New Jersey) approved cannabis, while a divided government means federal legalization is likely still years away. IIPR delivered a stellar quarter as net operating income drove the outperformance," he said in a Nov. 4 research note. "The company committed around $150 million of capital in the quarter at around 13% yields. With $245 million of capital left to invest and a pipeline boosted by further state legalizations, we see significant growth for quarters to come."
Santos also noted that, while most of the firm's assets are medical cultivation facilities, management has said recreational legalization could lead to more than 200% growth in overall sales.