3 Incredibly Cheap Real Estate Stocks
With the S&P 500 Index increased by 65% over the past year, and the Dow Jones industry average When you hit new record highs, it seems like the entire stock market is too expensive. Sure, some soaring tech stocks have pulled back, but most of the popular names are still trading for multiples of where they were a year ago.
Fortunately, there are several Real Estate Investment Trusts (REITs) that are not only cheap, but could also offer fantastic returns to long-term investors who are jumping in now. Here are three that I have in my personal stock portfolio and that I would like to add to their current price level.
A leader with massive growth opportunity
Digital Realty Trust (NYSE: DLR) owns and operates a large portfolio of data center real estate around the world and is one of the largest REITs of any kind in the market. Unlike the other two I’m going to discuss here, Digital Realty wasn’t badly affected by the COVID-19 pandemic. In fact, the blocking and remote working trends have dramatically increased the volume of data around the world.
Like most so-called “stay-at-home” stocks, Digital Realty has pulled back significantly since we got some light at the end of the tunnel. The stocks are nearly 20% below their 2020 high.
However, it is important for investors to recognize that the long-term trends in the data center space are still strong. The gradual adoption of 5G technology around the world, the increase in internet-connected devices, and the growth of data-intensive technologies such as autonomous vehicles and augmented reality are likely to keep the demand for data centers rising for decades. Patient investors who add digital realty to their portfolio now could see years of outperformance.
The right type of retail to invest in
In contrast to digital realty STORE Capital (NYSE: BIG) was badly affected by the pandemic. The main focus of STORE Capital is on single-tenant properties that are occupied by service and retail tenants. About a third of the company’s properties are occupied by tenants in industries such as movie theaters, family entertainment centers, fitness centers, day care centers, and other properties that were largely forced to shut down or operate at greatly reduced capacity for much of 2020.
However, the latest news has been encouraging. STORE’s rental collection has steadily increased from 70% of the rent billed at the height of the pandemic to 93% in February. Almost all of the company’s properties (with the exception of a few theaters) are open for business. And STORE expects extensive growth in 2021 with an acquisition volume of more than 1 billion US dollars.
With stocks still roughly 15% below their pre-pandemic high and a well-funded dividend yield of 4.2%, STORE is a fast-growing REIT that should produce an excellent combination of growth and earnings.
This collection of old Sears properties could be worth billions
Seritage growth properties (NYSE: SRG) is specifically designed for purchasing a portfolio of properties occupied by Sears and Kmart stores. Of course, nobody thinks owning a Sears is a good investment these days. But that’s the point.
Seritage owns 183 properties totaling 26.5 million square feet and plans to gradually convert most of them into premium mixed-use properties. The first results were impressive: Completed and approved projects generated around four times the rental income of their previous (Sears) tenants. Seritage has just completed redevelopment of approximately 8.5 million square feet of land it owns, so it is still in its early stages. And it hasn’t even touched most of its large-scale, prime (with the highest potential) properties yet.
Currently, Seritage is not profitable. And that’s not surprising – after all, large-scale renovations cost money, and less than a third of the company’s properties are currently renting. However, the potential for value is enormous, especially when it comes to Seritage’s most promising properties. With a market capitalization of less than $ 900 million, Seritage could multiply itself many times over if it can successfully realize its vision.
Don’t expect quick wins
To be very clear, I suggest these as attractive real estate stocks for long-term investors. I have absolutely no idea what they’re going to do in the next few weeks or months, and if there are further spikes and / or reopening delays, investors could be waiting for a tumultuous ride in the short term.
Even so, I’m pretty confident that investors who buy at these levels and hold onto them for the next decade will be very happy that they did. Invest accordingly.
This article represents the opinion of the author who may disagree with the “official” referral position of a Motley Fool Premium Consulting Service. We are colorful! Questioning an investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.