ARE is a buy; market panic over past declines ignores strong fundamentals, rising occupancy, and undervaluation.

First, what better way to kick off our Halloween special than with one of my favorite stocks, and probably my all-time favorite, in terms of the stock's frightening decline that the market has been punishing it for years since the end of the pandemic?

I think he has great potential for a comeback here. It is a stock of "Alexandria Real Estate", and its trading symbol is (ARE).

This is a stock I started buying myself for the first time this year, and I am very excited to increase my stake in it over time, given the clear gap between the panic on Wall Street and the true value of the company’s real estate and core business.

First, “Alexandria” is not your average commercial leasing company that rents out traditional office spaces or offices, or even traditional retail stores that could easily be affected by remote working, e-commerce, or even artificial intelligence.

Rather, it is the company that established this specialized real estate sector for life sciences and biotechnology. They are building and operating massive, world-class complexes they call "megacamps," strategically located in the nation's most important biotechnology hubs.

Places such as the Greater Boston area, San Francisco, San Diego, Seattle, and Maryland. These are not traditional offices. Rather, they are vital laboratories and research facilities that industry giants rely on every day.

Think about this for a moment. You can't test experimental cancer drugs from your home while you're on the couch via Zoom. You can't put such massive equipment in your home garage, and you certainly can't perform automated gene sequencing or manufacture complex biological therapies without specialized laboratory infrastructure, dedicated ventilation systems, and strong, continuous electrical power.

While people like to talk about the role of artificial intelligence in accelerating drug discovery, the actual process remains extremely complex and requires highly specialized laboratories to accomplish it.

This is why about 90% of their top 20 tenants are multinational pharmaceutical giants and large companies with excellent credit ratings such as Bristol-Myers Squibb, Eli Lilly, Moderna, AstraZeneca, the US government, and even technology giants like Google and Uber.

Because these properties are so important, their leases carry a weighted average remaining term of at least 10 years, with automatic rent increases included in 97% of them. In other words, these giants understand the true value of these properties, and they know that it would be extremely costly for them to simply move to another competitor given all the logistical and other complexities.

Therefore, they are actually agreeing to commit to long-term leases that also increase in value over time.

However, despite the appeal of this type of business, our stock price has collapsed dramatically, falling from its peak during the pandemic by about 80%, wiping out a decade's worth of shareholder profits.

So, what exactly is Wall Street afraid of? Well, as you can see, this stock has been performing exceptionally well over the long term. However, there were two major periods of collapse that need to be noted.

One was due to the 2008 financial crisis, and the other was similar during another perfect storm, but sooner, when the Federal Reserve was aggressively raising interest rates to combat inflation.

This is a move that, as we all know, tends to crush commercial real estate.

Well, just before that, developers also rushed to build a lot of labs during the pandemic frenzy because of all the hype and demand that was happening at the time, you know. This created a temporary surge of excess supply in the market.

However, what we are seeing now is that venture capital is beginning to run dry due to this surplus and weak demand after the pandemic, leading to a significant slowdown in funding for emerging biotechnology companies.

The result is that Alexandria had to absorb some of the vacant spaces resulting from the downsizing of tenants' businesses.

So much so that management was forced to make the difficult decision to cut dividends by almost half, in order to save hundreds of millions of dollars in cash, which would help them finance their projects under construction instead of having to issue debt that would become increasingly expensive in light of rising interest rates, as expected.

But here I think the opportunity is starting to appear again, because the stock is now trading at a price about 50% cheaper than the sector average in terms of proceeds from operations.

Despite the reduced dividends, we still get one of the most attractive returns in the market. The percentage is approximately 6%. I mean, historically, investors have been happy to receive roughly half of this amount. Therefore, it is much bigger.

Now, I'm not saying the stock will easily double from here just to correct this situation. Although you can certainly anticipate, you certainly can...you know, not exactly anticipate it, but you can build a rationale for it, that's what I'm trying to say.

And I do believe that this is possible in the long term. Especially since we are already seeing some initial signs of improvement in the core business.

When this is combined with the fact that the dividend yield is very high, this is what usually tends to happen. The stock price must correct itself for the dividend yield to return to its normal levels.

The share price will have to rise to achieve that.

Speaking of improvements in business, again, we are seeing early signs of them. In the last quarter, for example, Alexandria leased more than one million square feet of new and renovated space.

That was a 60% jump from the previous quarter. Because they have another 1.4 million square feet ready for future leases with tenants scheduled to move in, their actual occupancy rate is now recovering to over 90% again.

The rate was decreasing. And now it has started to rise again. This will bring in tens of millions of dollars in new revenue from lease agreements.

Just last summer, for example, they officially opened a brand new, state-of-the-art 426,000-square-foot research facility in San Diego. It is 100% occupied by Bristol Myers Squibb, another company in which I also own shares.

But Bristol Myers is certainly a very reliable company in the long run. This is under a 15-year lease agreement. So, it's a very big deal. This alone will generate approximately $57 million in new operating income.

The company is also cutting costs, and it actually has one of the best balance sheets. Not many people know this, but it ranks in the top 20% of all real estate investment trusts (REITs).

It is extremely important. This means they should easily withstand the current high interest rate storm, in what may be a potential future recovery.

And I think it will be. Again, there is a high risk here, as they have to deal with some expired leases. There are some operational changes they have to go through. I think it will take a few years before they really start breaking new records in their profits.

But we are already seeing better numbers than before the pandemic, yet the share price is actually lower and cheaper. It doesn't seem entirely logical. So, although the market hates it right now, to me it looks like the kind of contrarian stock I like to bet on in the long run.

I am adding shares here while I can still do so at these levels.