#-ad_banner-#It’s tough out there for a value investor. The market has shrugged off worries of a Greek bond default, and the major stock market indices remain near peak levels.  A clear sign of robust markets:  The S&P trades for more than 20 times trailing earnings.

Luckily, the market aphorism, “It’s not a stock market, it’s a market of stocks” holds true. There are bargains out there waiting to be found, especially in one key sector. The uncertainty about interest rates has pushed the prices of real estate down, but one of the most consistently profitable real estate companies has fallen too far, and a golden opportunity for long-term investors has emerged.

A True Blue-Chip Company
Ventas, Inc. (NYSE: VTR) is a large healthcare-focused real estate investment trust (REIT), and with a market value of $21 billion, it is one of the largest REITs in the healthcare industry. The company is extremely well diversified, owning a broad portfolio of senior housing facilities, medical office buildings and hospitals. This company’s funds from operations (FFO) have  grown 10% annually since 2004, and that has made shareholders rich along the way.

Despite the announcement of a strong 8% increase in FFO in its first quarter earnings report, shares of Ventas have fallen nearly 20% since early February, a much steeper drop than most other REITs, as characterized by Vanguard’s REIT ETF (NYSE: VNQ).

The market is clearly pessimistic about REITs in general and Ventas in particular. There are several reasons the market could be mispricing these securities, but none fully explain why Ventas has fallen so sharply.

Ventas Is Not A Bond
Many investors classify REITs as a “bond substitute,” which is a high-yield investment that’s used to provide current income and little in the way of growth. But REITs are very different.

Bond prices have a strict inverse relationship with interest rates. When rates rise bond prices fall.

REITs may be hurt by rising rates. They often have large debt loads and rely on debt to fund acquisitions. Rising rates for a company with variable rate debt can be a huge drag on profitability as higher interest payments can come directly from the bottom line.

However, 83% of Ventas’ debt is fixed rate with a blended rate of just 4%. The company has largely protected itself, and the effect of rising rates on Ventas’ operations should be minimal.

Another distinction: Bond prices move in the opposite direction of interest rates because bonds pay a fixed rate of return. Ventas’ dividend growth has averaged more than 8% per year over the past 10 years.  Ventas has achieved impressive dividend growth, while keeping a manageable dividend payout ratio relative to its FFO.

REITs are not bond substitutes. Ventas offers a high yield, but grows its dividend rapidly and has the fundamentals to grow it sustainably.

A Golden Opportunity  —  And A Catalyst
Ventas’ falling stock price is a fantastic opportunity for investors to add this quality business to their portfolio at a discount. Ventas is trading for 14 times FFO. For a blue-chip company that pays a 5% yield and grows its dividend and FFO 8%-to-10% per year, this is a bargain.

A company with Ventas’ portfolio and operating record should trade at a premium to other REITs. The REIT index trades at just over 15 times funds from operations. If Ventas traded at a modest 17 times funds from operations, the stock would be worth more than $75 per share, making it 20% undervalued, with a 5% current yield while you wait.

However, Ventas announced two actions that could close the discount quickly. In conjunction with an acquisition of Ardent Health Services, a hospital operator, Ventas will be spinning off its skilled nursing facilities division into a separate entity.

The corporate restructuring will have multiple benefits for shareholders: Spinoffs often outperform in the first year after the transaction; Separate operating companies benefit from focused management teams; and Ventas has provided guidance that after incorporating Ardent Health’s hospital portfolio it expects its FFO growth to accelerate.

Risks To Consider: The stock price could be volatile around any interest rate announcements from the Federal Reserve.

Action To Take –> Take advantage of the market’s short-sightedness to add the fantastic company to your portfolio. The stock could return 20% in the first year, while the discount to fair value closes and 8%-to-10% annual returns thereafter.

Ventas is a thriving firm with a reliable dividend, which means now you need a strategy to milk the security for all it’s worth. Our resident income expert Amy Calistri began using The Daily Paycheck strategy to build long-term wealth using dividend payers. Since she began she has earned more than $76,000 in dividends. We, at StreetAuthority, have been so impressed that we urged her to spread the word to a wider audience. That’s why, for the first time, Amy took the stage to explain exactly how The Daily Paycheck strategy works. If you haven’t already, I encourage you to watch the exclusive presentation here. You won’t be disappointed.