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Ventas (VTR): How to Play a Mega-Trend for Big Total Returns

September 04, 2015 – by Richard Band

One of most immutable long-term trends in place across the globe today is the aging of most major developed nations’ populations. And as this trend begins to take hold in the U.S., there are opportunities on every level.

Ventas (VTR): A Total Return Stock Riding an Immutable TrendBut one that is very timely right now is healthcare real estate investment trust Ventas (VTR), which has been positioning itself for this inevitability for a long time now.

At this point, Ventas stock is one of the best long-term total return picks you can make as an investor.

Baby Boomers: An Investment Boon

And no place is this demographic transition more apparent than the U.S. Insurers, pharmaceutical companies and hospitals are merging to gain market share and negotiating power with one another; medical records are being digitized and a new healthcare system is taking over.

The baby boomers represent more than 75 million people in the U.S., almost one-third of the population, and they’re all getting into their golden (or more accurately silver) years. The over-65 population in the U.S. is expected to triple between 1989 and 2030.

That is a significant amount of the population that is going to be seeking a growing amount of medical services from chronic ailments like arthritis and diabetes, to more significant interventions. And as we are able to manage our health better and live longer, the healthcare industry will become even more important. This is why quality healthcare REITs like VTR are so intriguing.

But you can’t simply buy any of them. As we have seen with the ups and downs of the Affordable Care Act (aka, Obamacare), you have to find a REIT that has the size and the vision to be able to not only adapt to changing trends, but take advantage of them.

This has been Ventas’ metier for years now. While it’s a REIT with a strong 5.5% dividend yield, VTR is recognized in the industry as a growth stock. This is because Ventas takes advantage of changes in the healthcare landscape quickly and decisively to make sure it is always in the top growth sectors as they emerge, not once they mature.

For example, VTR recently spun off its skilled nursing care facilities into a new company and stock, Capital Care Properties (CCP). One reason for the spinoff is the fact that nursing home properties are no longer the growth market they were a few years ago. The space has matured and there are few places to expand profitably at this point. CCP will have a portfolio of 355 nursing homes in North America with more than 40 operators waiting for the influx of baby boomers.

Now, VTR has begun to move into a new growth sector: hospitals. Now that Obamacare is the law of the land, Medicare expansion is a pretty safe bet regardless of what changes are made around the edges. And it’s also moving into the same business in England.

Ventas’ recent $1.75 billion acquisition of Ardent Health Services, a top 10 U.S. hospital operator, is a move in that direction.

CEO Debra Cafaro summed up the strategy best:

“Hospitals are currently benefiting from major positive trends such as demographics, policy tailwinds such as Medicaid expansion and an improving economy. The recent Supreme Court decision in King v. Burwell to validate federal exchanges and subsidies was just the icing on the cake in terms of our investment thesis and valuation.”

VTR is off 26% year-to-date, and much of this is due to the company’s acquisitions and CCP spinoff making investors and analysts a bit skittish on how it will all settle. But given the record of this CEO and the company, this is a transition period that’s setting up VTR for some big things in coming years.

REITs are something you don’t trade in and out of; they’re long-term growth companies. And VTR is a bargain right now.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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