In this article we will present the 10 best real estate stocks to buy now. Click to skip ahead and see the 5 Best Real Estate Stocks To Buy Now.
The coronavirus shook the real estate market to the core in 2020. As the virus wrecked havoc in the U.S. and abroad, tenant leases were cancelled, millions defaulted on their rents and companies shuttered their offices, sending real estate companies and landlords in a state of shock. According to Deloitte, deal volume in the global commercial real estate market plummeted 36% year over year $306 billion in the second quarter of 2020 because of the pandemic-related economic strain and uncertainty. However, analysts believe that the economic activity is bound to recover in late 2021 and early 2022, and now is the suitable time to invest in real estate stocks to reap big gains in the future.
Growth Catalysts for Real Estate Stocks
Deloitte said that despite the uncertainty and losses, industrial property index rose 7.4% in the second quarter of 2020. It also said that unlike the global financial crisis, commercial real estate companies’ financials look strong and debt markets remain sufficiently liquid. The report said that signs of a strong recovery are already visible in the market, but real estate companies will have to tread cautiously and prepare themselves for future uncertainties and expenses. Average rent collections for industrial, office, apartments and healthcare REITs are up 90% in the period between April and July 2020. Rent collections for shopping center REITs declined 50% in April, but jumped 80% in August.
Rebounding from the Rock Bottom
Despite the uncertainties and massive changes caused by the coronavirus crisis, real estate remains one of the essential elements of human life. As vaccines become available for people, companies will reopen their offices and life will come back to normal. Real estate stocks might take a while to rebound to their pre-pandemic levels, but there is no doubt about their future growth. That’s why real estate stocks are suitable for long-term investors. Marc Halle, managing partner at Park Lane Investors, said: “I think REITs in general have bottomed out, and I don’t think we’ll retest the lows.” Commercial real estate investment and services firm CBRE also believes that the real estate market is poised to rebound. The firm said in its real estate 2021 outlook report that GDP is expected to end 2020 down by only 4.0%, followed by a 4.5% rebound in 2021. About 98% respondents in its survey said that they plan to return to office in the third quarter of 2021. Hotel occupancy, on the other hand, will reach pre-pandemic levels by 2023.
The housing market in the U.S. is experiencing a growth on the back relocations made possible by the remote work trend and low mortgage rates. In a Forbes report, Danielle Hale, chief economist at Realtor, said that sales in the housing market are expected to jump 7% in 2021.
The coronavirus crisis hammered the already vulnerable financial markets. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Preparing for the Future
The coronavirus crisis also laid bare the room for growth and technological advancements in the real estate sector. Major real estate companies, hotels and office space providers will invest heavily to make their properties ready for occupancy. They will also work on technologies like touch-less check-ins, optimized cleaning, apps, websites, space segregation and remote work-friendliness. All of this will help real estate stocks grow in the future.
Byron Carlock, PwC Partner and US Real Estate Practice Leader, said in a report:
“Now, more than ever, the real estate industry has the chance to take the lead in using planning and development skills and investment capital to reshape our work and lifestyle environments. These tools can be used to address societal issues of safety, green space and racial equity. The gauntlet of responsibility is ours to embrace, and industry leaders see the opportunities and are responding with investment and leadership.”
Let’s take a look at the 10 best real estate stocks to buy now.
10. Federal Realty Investment Trust (NYSE:FRT)
Federal Realty Investment Trust is a Maryland-based REIT that mainly invests in shopping centers. As of the end of 2019, the company owns stakes in 104 shopping centers containing 23.7 million square feet. In November, Federal Realty Investment Trust posted strong third-quarter results and said that the quarter reflects leasing volumes at pre-COVID levels, improving rent collections and liquidity. In the third quarter, revenue totaled $208.2 million, above the Street’s estimate by $1.63 million.
Federal Realty ranks 10th on the list of 10 best real estate stocks to buy now, as 14 hedge funds in Insider Monkey’s database held positions in the company. When looking at the institutional investors followed by Insider Monkey, Eduardo Abush’s Waterfront Capital Partners has the number one position in Federal Realty Investment Trust (NYSE:FRT), worth close to $18.2 million, corresponding to 2.9% of its total 13F portfolio. Sitting at the No. 2 spot is Phill Gross and Robert Atchinson of Adage Capital Management, with a $5.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism consist of Israel Englander’s Millennium Management, David Harding’s Winton Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Waterfront Capital Partners allocated the biggest weight to Federal Realty Investment Trust, around 2.92% of its 13F portfolio.
9. Realty Income Corp (NYSE: O)
Realty Income ranks 9th in our list of the best real estate stocks to buy now. California-based Realty Income is a major real estate investment trust which invests in free-standing, single-tenant commercial properties. It is one of the very few REITs who pay monthly dividends. In January, the company announced a $0.2345 per share monthly dividend. Forward dividend yield of the company is 4.87%.
As of the end of 2019, Realty Income owns close to 6500 properties. Some of its largest clients include Walgreens, 7-Eleven, Dollar General, FedEx and AMC Theatres.
We recently featured Realty Income in an article titled “10 Best Dividend Stocks That Pay Monthly“. Here is what we said:
Hedge fund ownership of Realty Income Corporation (NYSE:O) has steadily increased since the first quarter of 2019, rising by 60% during that time. The REIT, whose shares were owned by 24 hedge funds on September 30, is about as steady of a monthly dividend payer as an investor could hope to find, having made monthly payments to shareholders for over 600 consecutive months, or just over 50 years.
Realty Income’s next monthly payment will be made on January 15 (ex-dividend date December 31) and will amount to $0.2345, equating to an annual yield of about 4.7%. Its dividend payments have been hiked by about 11.9% over the past four years.
8. CBRE Group Inc (NYSE: CBRE)
CBRE, a commercial real estate services company, ranks 8th in our list of the best real estate stocks to buy now. It also ranks 128 on the list of Fortune 500 companies. CBRE provides facilities management, project management and consultancy services for property occupiers. For investors, the company provides capital markets consultancy, property leasing, investment management, property management, valuation and development services.
Jeffrey Ubben’s ValueAct Capital is one of the leading shareholders of CBRE as of the end of the third quarter, with 14.77 million shares of the company. The total value of these shares is 693.73 million. Oakmark Funds talked about CBRE in its 2020 Q3 letter:
“CBRE Group is the largest commercial real estate services firm in the U.S. The company has significant scale across its various service lines and geographies, enabling it to consistently invest more than its smaller peers into the research, tools and technology that customers value. This industry-leading value proposition has driven consistent share gains for CBRE in recent years as large clients have been attracted to the company’s differentiated capabilities and the best brokers have been attracted by the steady stream of clients. We expect CBRE to continue to gain market share in this highly fragmented brokerage industry for many years to come while it further transitions away from transaction-driven commissions and toward contractual fee revenues. Outsized fears around work from home have caused the company to sell for less than 9x our estimate of mid-cycle earnings. We think this is a bargain price for this high-quality and well-managed business.”
7. Digital Realty Trust, Inc. (NYSE: DLR)
California-based Digital Realty ranks 7th on the list of 10 best real estate stocks to buy now. The company invests in carrier-neutral data centers and provides colocation and peering services. As of the end of 2019, Digital Realty owns 225 operating data center facilities across the U.S. Europe, Asia, Canada and Australia.
In December, Digital Realty shares rallied after Deutsche Bank gave bullish comments for the company. Mizuho also started covering Digital Realty shares with a Buy rating and$165 price target.
Jeffrey Furber’s AEW Capital Management is one of the 25 hedge funds tracked by Insider Monkey that reported owning shares in the company. The fund owns 763,836 Digital Realty shares, worth $112.1 million.
6. Simon Property Group Inc (NYSE: SPG)
SPG ranks 6th in our list of the best real estate stocks to buy now. Simon Property is one of the largest real estate investment trusts in the U.S. The company primarily deals in malls, premium outlets and mills. Simon was one of the worst-hit real estate companies after the coronavirus crisis as retailers shuttered and consumers stopped going to buy stuff from physical stores. But analysts see a strong recovery on the horizon, and the stock is up close to 60% over the last 6 months.
In November, Barclays named Simon Property stock amongst its top picks to ride the recovery wave in 2021. As of the end of the third quarter, Jacob Mitchell’s Antipodes Partners owns 937,778 shares of the company, worth $60.66 million. It’s among the 25 hedge funds tracked by Insider Monkey having stakes in the company.
AvalonBay is a Virginia-based real estate company close to 80,000 apartment units in the New York metro area, the Washington D.C. metro area, Seattle and California. It is now the third largest apartment unit holder in America. The company was formed in 1998 as a result of the merger between Avalon Properties Inc. and Bay Apartment Communities Inc.
As of the end of the third quarter, 29 hedge funds tracked by Insider Monkey held stakes in Avalon, down from 34 funds a quarter earlier. Daniel Sundheim’s D1 Capital Partners owns 2.68 million shares of the company, worth 399.81 million.
Texas-based Howard Hughes started off as an oil drilling tool business founded by American business magnate Howard R. Hughes, Sr. The company later diversified into real estate development. It’s now one of the largest real estate companies in the country, owning hotels, golf courses, housing assets and entertainment venues. In the third quarter, the company posted a GAAP EPS of $2.51, beating the Wall Street’s estimates by $3.22.
Legendary investor and billionaire Bill Ackman’s Pershing Square is one of the biggest shareholders of Howard Hughes, with 10.92 million shares of the company, worth 628.88 million. Clark Street Value recently said Howard Hughes’ diversified model should help them compared to pure play real estate investment trusts. The investor believes that going forward the company will concentrate on residential land development compared to on office/multi-family new construction they were before the coronavirus pandemic. Clark Street Value added, “their big land banks are in Las Vegas and Houston, maybe not as hot as Austin and Miami but they’re both low cost-of-living and no state income tax markets that should have the wind at their backs.”
Prologis is a major real estate investment trust, with a focus on the consumption side of the global supply chain. As of the end of 2019, the company owns 3,840 buildings. In October 2020, the company upped its 2020 guidance for core FFO per share to $3.76-$3.78, above the consensus estimate of $3.72 and the previous range of $3.70-$3.75. The company’s CFO Thomas Olinger said that Prologis continues to improve amid lower credit losses. Prologis shares are up over 4.6% in the last 30 days.
As of the end of the third quarter, Jeffrey Furber’s AEW Capital Management owns 2.34 million shares of Prologis, having a total worth of 234.96 million.
California-based Equinix is a major real estate investment trust that primarily deals in Internet connection and data centers. The company has over 210 data centers in 25 countries on five continents. In 2019, the company signed 3 contracts with the U.S. agency Customs and Border Protection to provide IT support equipment worth $5 million.
As of the end of the third quarter, 42 hedge funds in Insider Monkey’s database held stakes in Equinix.
Boston-based American Tower Corp (NYSE: AMT) is a Fortune 500 company that deals in real estate services and wireless and broadcast communications infrastructure in several countries. The company owns over 170,000 communication sites all over the world.
Earlier in January, American Tower shares rallied after it was reported that the company signed an agreement with Telefónica (NYSE:TEF) acquire Telxius Towers.
American Tower tops the list of 10 best real estate stocks to buy now, as 62 hedge funds tracked by Insider Monkey held stakes in the company as of the end of the third quarter. Here is what RiverPark Advisors said about AMT in its 2020 Q3 investor letter:
American Tower: AMT shares were a top detractor on mixed second quarter results and management’s lowered full year revenue and EBITDA guidance (the company did, however, increase its AFFO/share guidance). The company guided to slower-than-expected U.S. property revenue growth due to a push-out of T-Mobile/Sprint capital spending. We believe U.S. activity should reaccelerate in the second half of this year, driven by T-Mobile/Sprint restarting capital spending, and into 2021, with Dish starting to ramp.
Although individual quarterly activity may remain lumpy, rapidly rising global mobile data usage in the range of 30%-40% per year continues to drive robust capital investment within the wireless industry. 5G deployment and major carriers’ needs for high-quality networks are likely to drive double-digit capital spending growth in 2021 (and similar amounts for the foreseeable future), irrespective of carrier consolidation. One key forecast is that by 2023, the average U.S. consumer mobile device is expected to consume nearly 50 gigabytes of data per month, nearly four times current levels. This tailwind, combined with world class execution, should drive consistent long-term revenue, cash flow and dividend per share growth at AMT for the foreseeable future. AMT’s tower portfolio continues to grow and its capital intensity continues to decline (the company has reduced the ratio of its capital expenditures to revenue by 1/3 over the past 10 years), leading to a significant increase in free cash flow (trailing-twelve-months free cash flow was $7.5 billion, compared with 2009’s $800 million).”
Please also see 10 Extreme Dividend Stocks with Huge Upside and 15 Best Beaten Down Stocks To Buy Now.
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This article is originally published at Insider Monkey.
