Real estate stocks have become oversold and that has presented an opportunity for investors, according to BMO. In fact, since the group has been a part of the S & P 500 , there have only been a handful of other times where the stocks have performed worse relative to the index on a year-over-year basis, chief investment strategist Brian Belski wrote in a note Tuesday. Real estate is the only S & P 500 sector that is in the red this year, off 6%. “According to our work, this type of abnormal underperformance has typically proved to be an inflection point historically,” Belski said. “[We] believe the sector is poised for a turnaround in the coming months and are recommending that investors use its current weakness as a dip buying opportunity,” he added. .SPLRCR YTD mountain S & P 500 Real Estate Sector year to date BMO identified four other periods of this abnormal underperformance. In the year following such troughs, real estate investment trusts outperformed the S & P 500 by about 17%, on average. Belski thinks the stocks have also been unfairly punished in response to interest rate trends. While historically their relative performance has fared somewhat better during periods of falling interest rates, they have also managed to outperform in a higher rate environment, he said. Fundamentals also appear supportive, according to Belski. “Free cash flow yields for REITs continue to go up, with debt going down,” he said in an interview on ” Squawk on the Street ” on Thursday. “Payouts are going up as well.” Here are some of the REITs BMO rates as outperform. They also pay dividends, so investors can earn some income while they wait for a rebound. Investors can snag a 6.4% dividend yield with Boston Properties . The company develops, owns and manages workspaces across the country, including in New York and San Francisco. Office REITs suffered from the Covid-19 pandemic work-from-home trend and a slow return to the office. However, that is now shifting, Belski pointed out. “Everyone is working. We are coming back to work again,” he told CNBC. “The death of commercial real estate is way, way precluded. I think people predicted that way too early.” Shares are down nearly 13% year to date and have about 27% upside to BMO’s price target. Meanwhile, data center REIT Equinix just saw its stock rally more than 11% on Thursday, fueled by an earnings beat. “The rapidly evolving AI landscape continues to serve as a catalyst for economic expansion, creating immense potential for Equinix as our customers recognize the importance of digital initiatives in driving long-term revenue growth and operational efficiency,” Equinix president and CEO Charles Meyers said in a statement. Shares have lost about 6% so far this year and have about 25% upside to BMO’s price target. It has a 2.3% dividend yield. Ventas is also down about 4% year to date. The company’s portfolio includes senior housing communities, which stand to benefit from the aging population . The last of the baby boomers will turn 65 in 2030 , according to the U.S. Census Bureau. The stock, which yields 3.8%, has roughly 7% upside to BMO’s price target. Lastly, Host Hotels & Resorts , which owns luxury and upper-upscale hotels, has a 4.4% dividend yield and is down nearly 6% so far this year. It also has about 25% upside to BMO’s price target. Earlier this month, the company reported adjusted funds from operations for the first quarter that topped estimates. It also posted a revenue beat and upped its full-year funds-from-operations and revenue guidance.
Tag: Equinix Inc
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Bricks over bytes: New hard asset ETF places big bet on real estate
A new ETF is making a big bet on real estate and other hard assets.
CBRE’s Investment Management launched the IQ CBRE Real Assets ETF in May with the idea that it will deliver inflation protection in a rising interest rate environment.
“The ETF market is lacking options in this space,” the ETF’s portfolio manager, Dan Foley, told CNBC’s “ETF Edge” on Thursday. “There’s a lot of opportunity here with secular changes in things like digital transformation, decarbonization, and then, just frankly, mispricing in the market.”
Foley pointed out that global financial institutions are already in the space and said he believes retail investors should be, too.
“This has been one of the most attractively positioned segments of the real asset universe,” Foley said. “Valuations are very compelling. … [The] elements are in place for a pretty strong total return going forward.”
CBRE’s new ETF is hitting the marketplace as excitement around artificial intelligence companies and technology dominate Wall Street.
Foley contended that hard assets, in general, are an important diversifier away from technology — particularly hot AI stocks. Plus, he noted that hard assets are crucial in enabling a digital economy in the first place.
“Data centers, cell towers, enabling decarbonization — you need these leading infrastructure companies to make that investment. It’s driving growth that we think will drive a differentiated outcome,” he said.
According to issuer New York Life Investments, the fund’s top holdings are in real estate and utilities. They include Public Storage, Crown Castle, Nextera Energy and Equinix (EQIX), which is considered a leader in data centers.
Equinix shares are up 7% over the past month.
“Equinix is a great example of a world-leading entity,” said Foley. “That’s the kind of asset you want. These are essential to the new economy.”
Since the IQ CBRE Real Assets ETF launched May 10, it’s down almost 6%.
