Real estate may not be the most exciting industry to invest in, but it is one of the most consistent in terms of returns. With the current uncertainty in the markets, investors are craving something that will provide consistent returns without being overly risky. One Wall Street analyst has a few ideas on this.
JMP Securities issued a few calls recently focused on real estate investment trust (REIT) stocks. Analyst Mitch Germain thinks that a handful of companies within this industry are due for a turnaround, and then some.
Historically speaking, one of the best assets that most investors are underweighted on is real estate. Those who own a home are technically real estate investors, but home ownership does not produce any income, unless you have rental properties, which can be very capital intensive, not to mention time-consuming.
Many investors are concerned that REITs will get hit hard in a rising interest rate environment, which the Federal Reserve appears to be kicking into gear as it recently raised the federal funds rate by 50 basis points. Many expect similar or even bigger hikes coming in June and July, as well as in the rest of the year.
Looking back, REITs have performed well in rising long-term interest rate environments. For instance, REITs outperformed the S&P 500 in roughly half the periods when Treasury yields were rising, and this positive momentum has been consistent with an improvement in underlying fundamentals.
Though headwinds have put a damper on the markets in general, JMP Securities believes that a few of these REITs could stand up to those headwinds. Even though this industry has been hurt by the recent semiconductor shortage and supply chain issues in general, it could stand to benefit going forward.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Germain initiated coverage on Agree Realty Corp. (NYSE: ADC) with an Outperform rating and $81 price target. That implies upside of 21% from the most recent closing price of $66.98. This firm is his “top pick” as its portfolio has proven to be “stout,” with the company being able to collect almost all rents during the pandemic. He adds that Agree Realty’s asset-recycling efforts have positioned rents to high-credit tenants while its concepts are “less susceptible to economic volatility.”
Agree Realty stock has a 52-week trading range of $61.62 to $75.95, and it traded at $65.83 a share early Tuesday. The dividend yield is 4.2%. The stock is down about 8% year to date.
Getty Realty Corp. (NYSE: GTY) was started with an Outperform rating and $32 price target, implying upside of 25% from the most recent closing price of $25.67. This stock is Germain’s “favorite small cap idea,” as the company has been methodically growing its auto and convenience portfolio while conservatively managing its balance sheet, the analyst tells investors in a research note.
The stock was trading at $25.16, in a 52-week trading range of $24.66 to $34.21. The dividend yield is 6.4%. Shares are down nearly 22% year to date.
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