You are being watched…
Your every move tracked…
Each time you send an e-mail. Each time you stream a movie. Each time you click on anything on the Internet… someone is making a digital note.
I don’t say this to make you paranoid, it’s simply the way things are these days. But I, for one, am not going to get all flummoxed about it, I’d rather profit from it.
You see, data collection is the next big market.
As Google Chairman Eric Schmidt has famously pointed out, “There were five exabytes of information created between the dawn of civilization through 2003, but that much information is now created every two days.”
That vast sea of data continues to grow each and every day. And there are a few companies that are raking in money hand over fist to collect and store the overwhelming amount of data.
There is also a slew of new products coming out all the time that allow data tracking. While we’re all familiar with our Internet history and cell phones keeping tabs on our behavior, now cars, homes, and even our clothes are doing it.
Companies like Nike and Under Armour have been releasing clothing that connects to your phone and sends you stats on your exercise routines.
Under Armour’s Head of Innovation, Kevin Haley, has even predicted that we will soon be able to buy clothing that has built-in temperature trackers that can tell if you are too hot or cold and adjust your shirt’s temperature and even the length of your sleeves. Or even change the color of your clothes…
These new breakthroughs are commonly referred to as the “Internet of Things” — common products that are connected to the Internet. The more products that come out, the more data we create.
But before you start plowing money into individual “Internet of Things” companies, there is one opportunity that you may not think of…
Considering the sheer number of products and companies capitalizing on the Internet of Things, I tend to see each individual company as a boat in a huge sea of data. Instead of betting on a few of those boats, I am more comfortable betting on the entire sea.
I’m talking about data centers — the places where all of our data is stored.
One of the hottest stock sectors this year is real estate investment trusts (REITs) that own, develop, operate, and manage these data centers. The six publicly traded data REITS in the U.S. have risen about 30% on average so far this year.
Here are three of the biggest players…
Equinix (NASDAQ: EQIX) is the largest data REIT by market cap, coming in at $26.12 billion.
The company was founded back in 1998, seizing the growing opportunity in a new industry. It converted to a REIT last year in order to save on taxes and deliver shareholders a regular dividend — which currently pays a modest 1.88%.
It’s returned 33% over the past year.
Equinix operates over 145 data centers — which it calls International Business Exchanges — across 40 major metropolitan areas in 15 different countries across five continents. That broad reach sets it apart from some of its peers in the sector. Its centers cover over 14 million square feet.
Some of its big-name customers are Amazon, Microsoft, and Cisco.
Digital Realty Trust (NASDAQ: DLR) is another large player, and owns around 130 data centers. It has the largest footprint, with its centers covering 22.8 million square feet.
It was founded in 2004 and currently sports a market cap of $15.56 billion.
It has been on a tear — the stock is up 63% in the past year alone. It also yields a juicy 3.3% on a dividend.
Digital Realty leases out data centers to more than 1,600 customers like IBM, Facebook, AT&T, and LinkedIn. The company has also pioneered several developments of energy efficiency and energy conservation in its data center designs.
The stock got a nice bump when the company announced that it is joining Equinix as the only other data center REIT on the S&P 500.
However, some of the biggest returns this year came from the smallest data center REIT…
DuPont Fabros Technology, Inc. (NYSE: DFT) has the smallest market cap of the three at $3.5 billion. It operates 12 data centers in the U.S. totaling around 3 million gross square feet.
The company is up almost 60% over the past year, while providing the biggest dividend at 3.93%.
It was founded in 1997 as a commercial development company, but shifted focus towards data centers in 2000. It went public as a REIT in 2007.
DuPont Fabros serves clients like Facebook, Dropbox, and UBS.
All of these companies should see solid growth as the data trends continue. According to Cisco, which manufactures networking equipment, Internet traffic will double by 2019.
These companies can count on the stream of data to keep flowing into their centers, and shareholders can count on padding their portfolios with these data center REITS.
Every time someone watches a show on Netflix, uploads a picture to Facebook, or streams music on Pandora more and more data floods into these data centers. If you own a REIT like Digital Realty, Equinix, or DuPont Fabros — you are getting paid each time they do.
