KB Home (KBH), Macerich Co (MAC), Bank of America Corp (BAC): What Do They Have In Common?

The company’s investment years often resulted in negative earnings. This was due to the interest related expenses up until the company fully constructed its mall properties. During the construction process, the company is unable to collect any rental revenue. Following the completion of construction the company was able to pay down its debt, and record revenue along with net income. The leveraged nature of real estate leads to higher rates of return on capital, which is why the earnings growth averaged 61% year-over-year over the past 15-years. This high rate of growth is the primary reason for why the stock trades at a 39.7 earnings multiple. Investors are anticipating the company to generate higher rates of profitability through its leveraged real estate buyout strategy. The company offers a compelling dividend yield at 3.33%.

Undervalued banking

Bank of America Corp (NYSE:BAC) is my favorite bank right now. The main reason is due to the cost-cutting opportunities that the bank has in front of it. The CEO, Brian Moynihan believes that he can generate an addition $8 billion through 2015 through various cost-cutting measures.

Bank of America Corp (NYSE:BAC) in its latest quarter was able to improve its earnings per share by 233% year-over-year. The company’s EPS increased from $.03 in Q1 2012 to $0.10 in the first quarter of 2013. The first quarter growth in EPS was driven by the declining loan loss allowances from 3.61% in 2012 to 2.49% in 2013. The company also saw net charge offs decline from 1.80% in Q1 2012 to 1.14% in the first quarter of 2013.

Analysts on a consensus basis anticipate the company to grow earnings by 23.33% over the next 5-years. This is driven by the improving economy, declining loan related losses, along with improving fee income.

Conclusion

The lenders will continue to recover with Bank of America Corp (NYSE:BAC) being the best deep value play. The housing turnaround keeps KB Home (NYSE:KBH) red hot. Following that I am heavily optimistic on Macerich Co (NYSE:MAC) as the company has an awesome track record of making leveraged real estate investments.

The article How To Play the Monopoly of Property originally appeared on Fool.com and is written by Alexander Cho.

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