Most active investors in individual stocks experience their share of successes and failures. No investor can predict a stock's performance over a lifetime, so technically, a vow to "never" sell is an exaggeration.
However, some of my investment decisions have prompted me to buy stocks in emerging industries, leading to market-beating returns and long-term prospects that make any potential sale of those stocks highly improbable for many years to come. For me, Block (SQ 2.32%) and Innovative Industrial Properties (IIP) (IIPR -0.17%) fit the "never" sell description. Let's find out a bit more about these two stocks.
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1. Block
One reason I am not selling Block is that I recovered most of my original investment. I sold 20% of my position after it had risen about 4.5 times above my purchase price. But the reason I am not selling more hinges on the business's potential.
The Square ecosystem includes all finance-related functions, including an industrial bank. Such a presence in both fintech and traditional finance enhances the value of the ecosystem. And its Cash App social payments platform gives it a foothold in personal finance. The product has also competed well with PayPal Holdings' Venmo, nearly catching Venmo in terms of customer numbers.
Moreover, even with the recent entrance into Spain, Block only operates in eight countries. And since Ireland, France, and Spain serve as a foothold in the European Union, it could easily lead to a presence in the other 16 countries that have adopted the euro.
Such expansions helped revenue grow 86% to $17.7 billion in 2021 compared to year-ago levels. Diluted adjusted net income rose to $898 million, up 111% over the same period.
Despite healthy growth, Block stock has dropped by 56% over the last 12 months as growth tech stocks have fallen. Still, its price-to-sales (P/S) ratio is just under three, or close to seven if you remove Bitcoin trading volumes from revenue. This makes it more competitive with PayPal, which sells for just over four times earnings.
That said, I do not like everything about the company. I do not care for the recent name change. Nor am I fond of the increased emphasis on Bitcoin as I feel the customers (not the companies) should pick the favored currencies.
Still, my belief in the potential of the Square and Cash App ecosystems overrides my concerns. As customers adopt its ecosystem and Block continues its expansion into other countries, it looks increasingly like a no-brainer stock that could soar.
2. Innovative Industrial Properties
Another stock I will keep is Innovative Industrial Properties (IIP). IIP benefits from the long-term growth of the medical cannabis industry. Allied Market Research forecasts a compound annual growth rate of 24% through 2026, boosting IIP's business.
Moreover, IIP is a real estate investment trust (REIT), not a cannabis company. It leases the land and facilities needed for medical marijuana production. This real estate focus means IIP is not subjected to the Schedule I restrictions that tightly regulate the industry it supports.
Additionally, the prohibition bolsters a key segment of the company. Most banks will not serve cannabis companies due to federal prohibition. IIP can finance these growers by buying a company's property and leasing it back to them. This provides its industry with capital while boosting IIP's top and bottom lines.
The sale-leaseback program played a key role in helping IIP generate $205 million in revenue in 2021, a 75% increase from year-ago levels. This led to $175 million in adjusted funds from operations (AFFO) income, a measurement of a REIT's free cash flow. AFFO rose by 78% year over year as operating expense growth of 46% offset a 145% surge in interest expenses.
IIP stock is up only 4% over the last 12 months as a market sell-off wiped out most gains. Still, with that drop, the $6 per share annual dividend yield produces a dividend yield of 3.3%. IIP also hiked the dividend in six of the eight previous quarters, increasing its attractiveness to income investors.
Due to its growth, IIP has attracted competitors such as NewLake Capital Partners. Also, a cannabis glut on the West Coast has slowed industry growth for now. Nonetheless, the industry should grow rapidly over time, and federal legalization will likely not occur anytime soon. This and the massive growth expected for the medical cannabis industry should bode well for IIP.
