When people think about e-commerce, usually the first names that come to mind are the big tech giants that we engage with online to shop. And while the technology that underpins online shopping is key to unlocking the future of retail, the nuts and bolts of getting the goods to buyers is also an incredible opportunity to profit.
On the Dec. 3 edition of "The Wrap" on Motley Fool Live, Host Jason Hall made the case for STAG Industrial (STAG -0.17%) as a likely big winner from the growth of e-commerce. And while shares have moved higher since, they're still down more than 6% from their 2020 high, and investors continue to overlook this real estate giant as a likely market-beating stock for many years to come.
10 stocks we like better than Stag Industrial
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Transcript:
Jason Hall: I've got another one I'm going to talk about here. It's a stock that's down this year. It's a business that I really like a lot. STAG Industrial.
This is a real estate investment trust. So far this year, since the beginning of the year, the stock is down in about 6.5%, somewhere around there. From the high, it's down about 12.5%.
STAG Industrial, the short version is STAG Industrial is mainly in the industrial warehousing market. They own about 450 different buildings, 92 million square feet in 38 states. Almost 400 of them are distribution facilities and warehouses. You have about 75 or so that are light manufacturing, a little bit of flexible office space.
Here's how I view it. Right now, you think about where there is a major growth trajectory in the real estate space because you've got commercial properties, there's a lot of concerns there about office space and that kind of thing. What is that going to look like in a couple of years. With the transition to hybrid models of work from home, companies that are looking to do more exclusive work-from-home. Then you think about real estate or retail real estate, there's questions -- investors aren't sure.
I think one thing that's pretty easy to predict is the growth of e-commerce. You think about Amazon, you think about Target, Walmart. A lot of these companies, you think about UPS, FedEx, last-mile distribution is a big deal. Getting as close to the end delivery as possible is a big deal.
That's really STAG's sweet spot. Here's the thing. They don't have a lot of exposure to any one particular customer. Their biggest tenant is Amazon, has four leases. That's their biggest tenant. About 2.5% of their base rents from Amazon. They do not have big exposure. Biggest markets, Philadelphia accounts for less than 9%. Chicago accounts for about 7%.
They don't have large geographic exposure, they don't have large single tenant exposure. There's a lot of things to really like about the business.
You think about another trend that I think could really be important, something that was really exposed this year is the global supply chain. I bought a dishwasher that we just got last week, got it the day before Thanksgiving. I ordered it on August 14th, at Lowe's, and it took that long to get it; I got it almost at the end of November. Global supply chains, they don't necessarily make these things in China, but I guarantee that half of the electronics and other components in it came out of a factory somewhere in China.
Huge exposure, so there's an opportunity for more light manufacturing, for more supply chain domestically, and in North America, and I think STAG Industrial is really really well-positioned to be a beneficiary of that. If you look at, again, the stocks is down 12.5% or so from the high. The dividend yield right now is almost 5%, let's see what their dividend growth track record is, it's $0.12 per share on a quarterly basis, they've increased that just about every year for four or five years. I think their ability to really grow that substantially is going to start being unlocked in about five years as they build up more and more of this, and as the real momentum and e-commerce really kicks off.
You think about, goodness, you guys got to help me out here, what's the big Canadian e-commerce company? Help me out here.
Iain Butler: Shopify.
Dany Vena: Shopify.
Jason Hall: Thank you. I don't know why I couldn't remember that. You think about Shopify's of the world where more small merchants are going to need last mile, the ability to have these commingled last-mile facilities. There's a huge amount of growth in this space, and to me, I think STAG Industrial is maybe the biggest overlooked winner from e-commerce.
