Kite Realty Group (KRG) Stock is Absurdly Cheap Right Now

Bireme Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. In the letter, the hedge fund said that its flagship U.S. equity strategy, Fundamental Value, returned -26.4% on a net basis. The fund underperformed its benchmark, the S&P 500 Index which returned -19.4% in the same quarter. You should check out Bireme Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Bireme Capital highlighted a few stocks and Kite Realty Group Trust (NYSE:KRG) is one of them. Kite Realty Group is a real estate investment trust company. Year-to-date, Kite Realty Group Trust (NYSE:KRG) stock lost 50.4% and on May 22nd it had a closing price of $9.68. Here is what Bireme Capital said:

“Just a few weeks ago we highlighted our best-performing investment of Q4 2019: strip-center REIT Kite Realty (KRG). The world is quite different now.

We wrote that Kite’s focus on grocery stores and service businesses positioned the company well, relative to mall operators, in a world of growing ecommerce — an advantage that was not reflected in its market price. Unfortunately, COVID-19 has severely impacted service businesses, including restaurants, most of whom have been forced to close or reduce capacity. As a result, KRG stock fell as much as 63%, from $19 to $7.

At $7 per share, KRG traded for an 18% dividend yield and an implied 12.3% capitalization rate, rare numbers in the real estate world outside of failing properties. We do not think KRG is failing. We do not think this is the last time that people will work out in gyms, sit down at restaurants, get their nails done, or pick up their dry cleaning. It is our view that most of these businesses will survive and eventually pay rent again, although there will likely be a 6-12 month period of shared pain between tenants, employees, landlords, banks, and taxpayers.

While Kite may breach some debt covenants if tenants don’t pay Q2 rent, we think lenders are highly likely to grant amendments. Nearly every commercial real estate company is in the same position as KRG and banks have strong incentives to grant leniency to fundamentally solvent borrowers. KRG has $350m in cash on their balance sheet, representing nearly three years of expenses.

As consumers slowly return to service businesses, we think KRG will return to trading at much higher prices.”

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In Q4 2019, the number of bullish hedge fund positions on Kite Realty Group Trust (NYSE:KRG) stock increased by about 18% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with HCA’s growth potential. Our calculations showed that Kite Realty Group Trust (NYSE:KRG) isn’t among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.