We recently compiled a list of the 8 Unstoppable Stocks That Could Make You Richer. In this article, we are going to take a look at where Net Lease Office Properties (NYSE:NLOP) stands against the other unstoppable stocks.
Navigating Volatile Equity Markets
In the current climate of extreme market volatility, finding safe and stable investments is challenging. Valuations seem overstretched following one of the longest bull runs, with major indices reaching record highs. Despite this, the focus should remain on stocks of companies with strong fundamentals and solid long-term prospects.
Similarly, it’s crucial to consider companies that can withstand uncertainties caused by various headwinds, such as rising geopolitical tensions, the US election, and the high interest rate environment. While the recent Federal Reserve rate cut, declining inflation rates, and a prolonged bull market have benefited investors, not all stocks are responding uniformly.
READ ALSO: 8 Worst Performing Tech Stocks in 2024 and 10 Worst Performing Blue Chip Stocks in 2024.
How Are Economic and Geopolitical Factors Influencing Investments?
As the US election approaches, economic issues remain the primary concern for most voters. Despite the equity market’s upward trend, the US economy has experienced several shocks, including slowdowns in the labor and real estate markets. Although inflation has decreased from a high of 9.2% to 2.4%, the Federal Reserve had to cut interest rates by 50 basis points to prevent a recession.
“Even as the data shows inflation has theoretically been slowing down, it has become more important in people’s minds over the course of the last three quarters, not less important,” said Jay Campbell, partner at Hart Research, the Democratic pollster for the survey.
The significant drop in inflation has coincided with higher growth expectations, driving upward momentum in the equity markets. Strong macroeconomic data, such as impressive GDP and retail sales figures, have supported these growth expectations. Amid these expectations, bond yields have increased, indicating that investors are selling safe-haven assets. Economists at Goldman Sachs suggest that the rise in yields is due to promising growth prospects rather than factors like the anticipation of Donald Trump’s potential presidency or concerns about the Fed’s rate cuts causing inflation to spike again.
“Yields have risen significantly over the past several weeks, which we find has owed primarily to continued strong U.S. growth momentum rather than shifts in election odds,” Goldman said in a recent note.
Conversely, escalating trade and tariff tensions between the US and China pose a threat to market sentiment. The International Monetary Fund has warned that these tensions could have costly economic consequences globally.
“We are seeing geopolitically driven trade around the world, which is why when you look at overall trade to GDP that’s holding up fine, but who’s trading with whom is certainly changing,” said Gita Gopinath, deputy managing director of the International Monetary Fund, to CNBC on October 23, 2024.
In response to perceived unfair trade practices by Beijing, the US and EU have increased tariffs on certain Chinese goods, further escalating trade tensions this year.
Despite rising geopolitical tensions, long-term investing remains the best strategy for building a profitable portfolio and sustaining growth over time. Key factors to consider include investing in businesses rather than just share prices, understanding the underlying business, and consistently investing during both market highs and lows.
Our Methodology
For this article, we identified approximately 20 stocks with a year-to-date share price gain of over 30% as of October 25 and an average analyst price target upside of at least 30%. We then narrowed the list to the 8 stocks with the highest average analyst price target upsides, ranking them primarily by upside potential and secondarily by year-to-date gains.
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 commercial real estate loan broker discussing the merits of a property with a homeowner.
Net Lease Office Properties (NYSE:NLOP)
Average Analysts Upside Potential as of October 25: 52.72%
Year-to-date gains: 66.13%
Number of Hedge Fund Holders: 15
Net Lease Office Properties (NYSE:NLOP) is an unstoppable stock that could make you richer while investing in the real estate sector. It operates as a real estate investment trust (REIT) with a portfolio of quality office properties. After being split off from a larger REIT, the company wants to sell its properties to pay off high-interest debt and eventually give shareholders their money back.
Even as Net Lease Office Properties (NYSE:NLOP) continues to divest some of its assets, it generates significant amounts of adjusted funds from operations from existing leases. As of the end of the second quarter, it owned 47 office properties that generated $102.5 million in annualized base rent with an occupancy rate of 82.7%. The fact that some of the top tenants include JPMorgan, CVS Health and KBR underlines a stable revenue base that allows it to support its dividend yield of 4.48%.
While the Net Lease Office Properties (NYSE:NLOP) sold six office assets in the quarter for $192.2 million, most funds were used to refinance debt as the company sought to strengthen its financial position. Given that the company’s combined assets are worth more than its financial obligations, it remains an attractive investment for investment in the US office sector.
Likewise, analysts on Wall Street maintain a buy rating on Net Lease Office Properties (NYSE:NLOP) with an average price target of $46, implying a 52.72% upside potential as of October 25 2024.
According to Insider Monkey’s database, 15 hedge fund portfolios held Net Lease Office Properties at the end of the second quarter, down from 19 in the previous quarter.
Alluvial Capital Management stated the following regarding Net Lease Office Properties (NYSE:NLOP) in its Q2 2024 investor letter:
“Our portfolio is largely unchanged from last quarter, with Net Lease Office Properties (NYSE:NLOP) still at the top. “NLOP” has been very active, selling five properties and surrendering two more to lenders in May and June. NLOP used its sales proceeds to reduce its term loan by $138 million and its mezzanine debt by $22 million. Since going public by spin-off last November, Net Lease Office Properties has reduced its term loan and mezzanine debt by 47% to $243 million, leaving it modestly levered and highly cash-generating as it continues to wind down
Excluding a few properties likely to be surrendered to lenders, Net Lease Office Properties now produces annualized base rents of $105 million. The market is valuing NLOP at $587 million for a cap rate (net property operating income/enterprise value) of 17.9% and $90 per square foot. It’s just plain dirt cheap, and the continuing liquidation of the Net Lease Office Properties portfolio will cause this discount to close sooner rather than later. At a still conservative 12% cap rate or $135 per square foot, NLOP would be worth $46 per share.”
Overall NLOP ranks 5th on our list of the unstoppable stocks that could make you richer. While we acknowledge the potential of NLOP as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NLOP 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.
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