We recently compiled a list of the 10 Best Real Estate and Realty Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Digital Realty Trust, Inc. (NYSE:DLR) stands against the other real estate and realty stocks.
Trump’s Win: Implications for Housing
As reported by Realtor, America’s newly elected president Trump has blamed illegal immigration for the country’s housing affordability crisis since these immigrants are in the race for an already short supply of homes and hence, plans to do the largest deportation operation in American history. It is important to consider that the recent post-pandemic surging home prices started off before the illegal immigration levels climbed. Furthermore, Realtor.com senior economist Ralph McLaughlin referred to this move as something that would create negative consequences for the housing market by stating:
“In the short run, reducing immigration could severely hurt the labor supply needed for new homebuilding since up to a third of residential construction employment consists of foreign-born workers”
Simultaneously, Trump wants to cut regulations and permit requirements that add unnecessary costs to new homes. Regarding this, economists believe that although reduced regulations might lower homebuilding costs, they would neither solve the entire housing crisis nor fulfill Trump’s dream of cutting the cost of a new home in half by eliminating regulations.
Where are the Mortgage Rates Heading Post-Election?
Mortgage rates are directly tied to 10-year Treasury bond yields which tend to grow with investors forecasting stronger economic growth and higher inflation. According to Mortgage News Daily, the 30-year fixed mortgage rates briefly rose, settling at 6.98% following Trump’s victory. Despite two rate cuts by the Fed, the rate has surged by almost 1% since the month of September.
Trump has also stated his enthusiasm related to somehow lowering mortgage rates, without a clear mechanism unveiled as of yet. Economists and analysts believe that the President’s economic agenda could potentially lead to a surge in mortgage rates. Trump has plans to reduce tax rates, impose tariffs on foreign goods, and ease regulations, policies that are going to lead to a rise in inflation and government debt, which is going to drive up the interest rates and mortgage rates. Before the elections, 16 Nobel Prize-winning economists agreed that Trump’s policies would fuel inflation, calling Joe Biden’s economic agenda vastly superior to Donald Trump’s.
Doug Bauer, CEO of Tri Pointe Homes, joined CNBC to discuss what’s next for the US housing market. He sees the lower corporate tax and the easing of regulations for banks as positives. With banks being encouraged to put dollars into all businesses especially the land and land development business to small and medium-sized builders, it is going to help the industry as a whole. Regarding the deportation, he believes the discussion is pretty early but his company, as a larger builder, has not faced any problems on the labor side of the equation. Finally, he mentioned that the core issue remains the supply. While a reduction in interest rates would unlock the resale market, the new homebuilding is a ‘state and local issue’ as there are a lot of regulations pulling back the land that could be utilized to build affordable housing.
Ivy Zelman, Zelman and Associates CEO, also appeared on an interview with CNBC, to reiterate Bauer’s point about the issue regarding the new home market. In her opinion, the housing market weakness is at the entry level while the move-up market remains strong and resilient despite rates moving higher. While first-time homebuyers are facing extreme affordability issues, she thinks cities and municipalities could partner with local builders to utilize land that’s not out so far in the rural areas and that the solution lies at the local government level. Trump also plans to open up federal land for building. However, a limitation of this would be a lack of federal land located near the places where people wish to work and live.
Our Methodology:
In order to compile a list of the 10 best real estate and realty stocks to buy according to hedge funds, we first use a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best real estate and realty stocks to buy according to hedge funds have been arranged in ascending order of their hedge fund holders as of Q3.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up view of a technician installing a server in the data center facility, representing the reliable services provided by the company.
Digital Realty Trust, Inc. (NYSE:DLR)
Number of Hedge Fund Holders: 52
Digital Realty Trust, Inc. (NYSE:DLR) owns, operates, and invests in carrier-neutral data centers. The company delivers the full spectrum of data center, colocation, and interconnection solutions. These flexible, secure, and scalable data center solutions tend to support enterprises and service providers and meet critical infrastructure needs. DLR was incorporated in Maryland in March 2004.
DLR’s leading data center platform leverages the growing global demand from a diversified customer base. The firm’s global data center platform enables it to deliver value and security on six continents in over 25 countries and more than 50 metro areas. As of September 30, Digital Realty Trust serves as the 7th largest publicly traded US REIT with an equity market capitalization of $55 billion.
For Q3, Digital Realty Trust, Inc. (NYSE:DLR) reported revenues of $1.4 billion, a 2% rise from the same quarter last year. Funds From Operations (FFO) was $1.55 in Q3, the same as the prior year. Leasing activity remained strong as the firm recorded over $520 million of new leasing, more than double the record set in the first quarter. In regards to investment activity, DLR closed on the acquisition of a 6.7-acre parcel in Richardson, Texas, other than the acquisition of the land and shell of one of its existing data centers in Schiphol Rijk, Amsterdam.
With embedded internal expertise as the world’s largest data center acquirer, developer, owner, and operator, Digital Realty Trust, Inc. (NYSE:DLR) is a promising stock that can benefit from the accelerating global data center demand. As of Q3, the stock is held by 52 hedge funds which ranks it 3rd on our list of the best real estate and realty stocks to buy.
Overall DLR ranks 3rd on our list of the best real estate and realty stocks to buy according to hedge funds. While we acknowledge the potential of DLR as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than DLR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.