This week:
Semiconductor AI risk.
Restaurant execution risk.
Packaged food dividends.
Grocery-anchored real estate.
Plus and minus of multifamily real estate.
Insurance
Next Wednesday, the Fed will meet to discuss interest rates. I’ll wait to see what they decide before I sell any more policies. If they raise rates, stocks might fall and present opportunities to sell policies at great premiums, and buy companies at a discount.
Semiconductors
Broadcom $AVGO ( ▲ 2.98% ) released great numbers last week. Their AI chip revenue increased 221% year over year and their operating income increased 171% year over year. Demand for their chips is very strong. They expect their AI revenue to double to $115 billion by 2027 and double again to $230 billion in 2028.
One thing the CEO Hock Tan mentioned as a risk factor that I need to pay attention to is the constraint customers face building data centers. Without the data centers, customers can’t deploy Broadcom’s chips.
I need to watch this situation because if the chips sit in a warehouse waiting for a data center to be completed, future orders from OpenAI and Anthropic can stall. The chips they order need to be in use so they can develop better models and increase their revenue.
It seems risky to me that OpenAI and Anthropic are very unprofitable, but so many companies are tied to them. Any hiccups with their businesses will cause a bad cascade of events. I guess the strategy is to prop them up until they can afford to purchase the equipment they need.
When selling policies, I need to diversify and make sure I have enough cushion. The industry looks like a house of cards.
Restaurants
Restaurants are fighting for every customer and they plan to win by improving the quality of their food.
Burger King $QSR ( ▼ 2.37% ) recently improved their Whopper and it boosted their comparable sales 8.6% last quarter.
On Wendy's $WEN ( ▼ 5.23% ) last earnings call, CEO Bob Wright mentioned rebuilding their menu on an ingredient level. It’s interesting because I recently ate at Wendy's a few times and the food tasted fine to me. It actually tasted better than McDonald's $MCD ( ▲ 0.05% ).
My question is, if everyone improves their food, will it just make everyone remain on par with one another, and fail to uplift traffic? I think that even if the restaurant chains improve their food, they will still need to compete with price, marketing, and execution. Whoever executes their strategy first will take a temporary lead.
Just be prepared for a long, drawn out war, and buy companies at a discount.
The biggest risk to my investments in Wendy's and Papa John's $PZZA ( ▲ 0.35% ) is they might fail to execute. Todd Penegor has been CEO at Papa John's for two years now, and he has failed to introduce menu items that resonate with customers. The new sandwiches, pan pizza, and garlic bread fell flat.
According to BTIG, Papa John’s share of the market fell from 9% in 2023 to ~7.8% in 2025. YouGov Brand Index also said Papa John’s is below average when compared against Domino's, Pizza Hut, Little Caesars, and Marco's Pizza.
I have $876 invested in Papa John’s. I will just monitor them for now. I won’t invest more money into them since they eliminated the dividend. I will invest more into Wendy’s if the stock falls to around $6.79 or 7.6x EBITDA.
If the business stabilizes, Wendy's will skyrocket, especially with a high short interest of 32%.
Execution is key for Wendy’s Bob Wright. He executed at Potbelly. Hopefully he executes here.
Important business dynamic to understand with restaurants.
According to Subway's SVP of Development, restaurant closures can have the following impact on the chain:
Cuts purchasing power.
Reduces the ad fund.
Diminishes the brand's market presence.
Slows funding from vendors.
I should include these factors in my analysis when I hear about restaurants closing their locations.
Food & Beverage
Last week, Campbell's $CPB ( ▲ 1.78% ) cut their dividend so they can pay down their debt. This is the second time they cut their dividend since they became public in 1954. In 2001, they cut it from $0.90 annually to $0.63 (-30%).
Last week, they cut their dividend from $1.56 annually to $1.00 (-36%).
Campbell’s is suffering from declining sales. In Q4, their sales fell 8% and earnings were -$0.23 per share.
Based on my calculations, their net debt to EBITDA is 4.9x. Their goal is to bring their leverage down to 3x.
My company General Mills $GIS ( ▼ 1.57% ) is 4.1x leverage, which is also above the standard 3x.
If the packaged food industry keeps facing headwinds, I should expect General Mills to also cut their dividend, especially since they have $1 billion of debt coming due within the next 12 months.
The current interest rate on their debt is 2.2%, and it will be much higher when they refinance. Probably around 5% since I see their 2030 debt trading at ~5%.
Be conservative with future purchases of General Mills. They might cut their dividend by 30-40%.
Retail REITs
I heard a great podcast with the CEO of Paragon Commercial Group, Jim Dillavou. He buys grocery-anchored real estate.
He had some good insights that I need to keep in mind when analyzing REITs like Kimco $KIM ( ▲ 0.68% ) and Phillips Edison $PECO ( ▲ 0.31% ).
Notes to keep in mind when analyzing grocery-anchored shopping centers:
Customers will make daily trips because the center is convenient and sells necessity items. This makes the asset class durable through different market cycles.
Drug stores are challenging. They are considered single-use properties because they have unique layouts that make it hard to backfill when the drug store leaves. Multi-use properties are easier to backfill. Keep this in mind when analyzing Getty Realty $GTY ( ▲ 0.25% ) and their gas stations.
Drug stores paid high rents for a long time, so when they leave, it’s hard to backfill at the high rent. When they vacate, the properties are worth less.
Be careful when REITs have a high concentration of drug stores.
It’s hard to buy grocery centers because there aren’t many sellers. Occupancy is +95% with steady cash flows. Sellers don’t let go easily.
The average asset size is $50 million, so it’s hard to scale.
In the past, grocery stores were 50-60k sq ft. Now they’re 12-25k sq ft.
Savvy investors don’t like developing when rents are high because rents might decline during or after construction.
It’s good when legacy tenants vacate their space because their rents were likely low and the landlord can now raise rents to market level.
If a retail tenant goes bankrupt and leaves a big space, the landlord can rent the space to a grocery store which changes the nature of the center and increases the property’s value.
There are two components to all real estate deals. The real estate deal AND the capital side of the deal. Most times, these are mismatched. Find REITs where these are matched properly.
Jim mentioned a 200 basis point spread between debt expense and yield on cost. Use this spread as a benchmark for the REITs I’m considering.
In the past, retailers like Target, Lowe’s, and Home Depot wanted large parking lots. Now they’re willing to reduce their lots so other tenants can be brought into the center. More tenants can equal more traffic and sales.
Mom & pop tenants were the best to have during COVID. They paid their rent on time while credit tenants wanted concessions. Also, credit tenants have multiple locations, so they’re not fully invested in their space. Mom & pop tenants are more invested because the business is their livelihood.
Link to the podcast for future reference.
Multifamily REITs
With home mortgage rates at 6.7%, more people will have to rent longer. This is good for multifamily occupancy rates.
According to Chad Tredway, the head of real estate at JP Morgan, mortgage payments on the median home have doubled since pre-COVID, and home prices have increased 60% since 2019.
Essex Property Trust $ESS ( ▼ 0.43% ) said it is 2.5x more expensive to buy a home than to rent in their target markets.
Independence Realty Trust $IRT ( ▼ 1.12% ) said it is 89% more expensive to own a home than to rent in their markets.
I don't expect interest rates to fall anytime soon unless we enter a recession. Although high rental demand is good for occupancy rates, I still need to monitor rental rates, NOI growth, and capital structures.
Many multifamily REITs like Camden $CPT ( ▼ 0.93% ) , Mid-America $MAA ( ▼ 0.34% ), and Independence Realty have high exposure to Sun Belt states where there is an oversupply of apartments. Their occupancy rates are high because they’re offering rent concessions.
If interest rates increase or remain elevated, more properties will fall into distress and the risk of dividend cuts will become more real.
Only buy REITs with low leverage, attractive cap rates, and dividend yields. I don't expect these properties to appreciate much, so I need to buy them at a good price.
Remember to pray for the youth of America and for God to send people who will guide them towards the truth of Jesus Christ.
“But how can they call on him to save them unless they believe in him? And how can they believe in him if they have never heard about him? And how can they hear about him unless someone tells them? And how will anyone go and tell them without being sent? That is why the Scriptures say, “How beautiful are the feet of messengers who bring good news!”
Romans 10:14-15 NLT
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