If you could select the best real estate stocks for your portfolio, you would be able to experience most of the benefits of real estate investing without owning a single rental property.
When it comes to getting rid of hands-on management, there are numerous benefits to owning real estate stocks rather than real property. However, with a wide selection of real estate stocks available, the question arises: how does one start the selection process?
Here are of the best real estate stocks
1. Prologis Inc.
Prologis is a Real Estate Investment Trust (REIT) focused on logistics real estate, such as warehouses and distribution centers. According to analyst Michael Elliott, Prologis strategically places its logistics centers in sought-after areas that necessitate zoning entitlements, which consequently poses challenges for potential competitors attempting to secure access.
Elliott believes that Prologis’ property portfolio sets it apart from rivals and holds greater value than its book value of $3.5 billion, particularly in markets with scarce land and limited access.
It is anticipated that challenging financing conditions will hinder the rate at which supply grows, and Elliott foresees a minimum of 38% growth in revenue for Prologis in the current year. CFRA has assigned a “strong buy” rating and set a price target of $141 for PLD stock, which concluded trading at $128.06 on June 7.
2. American tower corp.
American Tower is a Real Estate Investment Trust (REIT) that specializes in operating the biggest collection of wireless communications and broadcast towers on a global scale.
Elliott believes that the long-term factors driving the demand for American Tower include the growth of mobile video, unlimited data plans, and the utilization of mid-spectrum 5G network bands. Additionally, the potential risks associated with an economic slowdown and the integration of acquisitions have already been fully accounted for in the stock’s valuation.
According to Elliott, the level of 4G network usage is only average in areas like Africa and Latin America, leading to notable possibilities for international expansion. He predicts a minimum of 3% revenue growth by 2023. CFRA has given AMT stock a “buy” rating with a target price of $230, while the stock itself closed at $190.93 on June 7.
3. Equinix Inc.
Equinix, which is the largest data center operator globally, is a specialized REIT. Elliott claims that Equinix benefits from a revenue base that repeats regularly, showcasing substantial earnings predictability. Furthermore, the considerable expenses and infrastructure essential for data centers form a significant obstacle for potential rivals.
According to Elliott, Equinix is the favored cloud partner for many of the largest technology companies globally. Equinix Metal, the company’s service, has shown remarkable growth in bookings. Moreover, Equinix has ongoing projects aimed at enhancing its capacity. CFRA provides EQIX stock with a “buy” rating and a price target of $797. On June 7, the stock closed at $738.95.
4. Public Storage
Public Storage, the biggest owner of self-storage facilities in the U.S., has a diverse and high-quality asset portfolio, according to Elliott. The self-storage market currently experiences positive fundamental demand trends, and Elliott anticipates that demand will surpass supply until 2023. This creates the potential for increased rental rates and margins without compromising occupancy rates.
Furthermore, he adds that Public Storage’s robust financial position will enable further acquisitions to enhance the company’s reach and enhance the quality of its portfolio. CFRA has assigned a “buy” rating and set a price target of $320 for PSA stock, which concluded at $291.87 on June 7th.
5. Realty Income Corp.
Realty Income is a retail Real Estate Investment Trust (REIT) that specializes in owning, developing, and managing single-tenant buildings in the United States. Among the stocks included in this list, Realty shares offer the highest dividend yield at 5.1%.
According to Elliott, Realty is less affected by the weak retail environment compared to other companies because it has a higher number of non-discretionary and service-oriented tenants, such as grocery, convenience, and drug stores.
The speaker observes that investors appear to not fully acknowledge the company’s ability to withstand a decrease in consumer spending. CFRA has given a “buy” rating and set a price target of $70 for O stock, which concluded at $61 on June 7th.
6. Welltower Inc.
Welltower, a health care REIT, engages in investments in various health care facilities such as senior housing, specialty care facilities, and medical office buildings. Up to June 7 in 2023, the REIT has achieved a year-to-date performance of 24.6%, the highest among all the stocks on this list when including dividends.
Elliott believes that the risks associated with COVID-19 are decreasing, and as such, Welltower’s future prospects are set to improve in the next year. The senior housing market is showing positive trends in terms of supply and demand, and Elliott predicts that the increasing aging population in America will further boost demand in the future. CFRA has assigned a “strong buy” rating to WELL stock and has set a price target of $87. The stock closed at $80.42 on June 7th.
7. Mid-America Apartment Communities
Mid-America Apartment Communities is a real estate investment trust (REIT) that primarily focuses on the ownership and operation of apartment units. It currently possesses over 100,000 apartments classified as both Class A and Class B, distributed across 297 communities within 16 states. These communities are predominantly situated in the Sunbelt region.
Over the past five years, it has demonstrated notable and consistent growth in funds from operations. As reported in 2021, its equity stood at $27.2 billion, while its debt amounted to $4.56 billion.
Mid-America Apartment Communities’ commitment to redevelopment and adding value to its existing units, instead of selling off aging ones, is perhaps its most remarkable aspect. In 2021, the company successfully renovated 6,360 apartments, resulting in a 12.2% increase in the average rental rate per unit.
In addition to being a reliable method for preserving a limited number of apartments, these practices are also affordable ways to enhance the value of each unit without engaging in frequent real estate transactions, which can be expensive. It is important to note that the more money invested, the lower the annual return for REIT investors. The company’s responsibility in managing its debts and equity is also apparent.
8. Farmland Partners
Contrary to the housing REITs that numerous investors are acquainted with, farmland REITs engage in the ownership and leasing of farmland for diverse types of crops and other purposes. Farmland Partners possesses a substantial land portfolio of 186,000 acres in the United States, accommodating over 100 tenants and cultivating 25 different crop varieties. This extensive diversity equips them to effectively manage unfavorable weather conditions that may lead to inadequate crop production.
The majority of the farms in its portfolio, about 90%, cultivate commodity products such as corn, soybeans, wheat, rice, and cotton. The remaining 10% consist of permanent crop farms that produce tree nuts, citrus, and avocados.
Unlike other farmland REITs, Farmland Partners leases their land to both solar and wind farms in addition to crop farmland. Their renewable energy leases consist of five solar farms and nine wind projects that coexist with crops.
Farmland Partners disclosed its assets at around $1.2 billion and total liabilities at about $528 million as of May 2022. Its entire portfolio shows no vacancies, demonstrating the confidence insiders hold in its future, as evidenced by their ownership of 8% of the company’s shares.
9. Lennar
Lennar, one of the largest builders of single-family homes in the U.S., achieved $27.1 billion in revenue in 2021. This financial success can be attributed to the delivery of nearly 60,000 homes throughout the year. In addition to its main focus on home construction, Lennar provides FHA and VA home loans to its buyers through its subsidiary, Lennar Mortgage. Furthermore, it offers title insurance and closing services in 18 states.
The rise in real estate prices and high demand for housing have caused a significant increase in homebuilding. At the end of 2021, Lennar’s backlog of homes, which amounts to 23,771 units valued at $11.4 billion, will contribute to the company’s earnings in 2022.
Furthermore, Lennar is seeking additional methods to simplify its financial records, including the implementation of a “lighter land strategy.” This strategy intends to diminish the duration of time Lennar retains individual land parcels before their complete development and sale.
Lennar, in addition to having clear strategies to reduce business expenses, is also focusing on technology advancements and actively searching for innovative approaches to construct homes with a limited workforce. Utilizing tools like 3D printing, they are exploring the possibility of constructing a larger number of homes in the future, despite the decreasing availability of construction workers.
10. LGI Homes
LGI Homes, a builder that is experiencing moderate growth, primarily targets first-time homebuyers in its marketing efforts. As of the period ending on March 31, 2022, the average price of a home manufactured and sold by LGI amounted to $305,000.
LGI has a distinct advantage in its market due to its pricing, which is a significant discount compared to the median existing home price of $391,000 reported by the National Association of Realtors in April 2022. However, the company’s advantages go beyond just pricing.
At the end of March 2022, LGI had $2.3 billion worth of inventory and $53.3 million in cash. It also had $1.171 million in liabilities. During the first quarter of 2022, LGI closed 1,599 homes, resulting in $546.1 million in revenues. This represents a 22.7% increase compared to the first quarter of 2021. It is important to note that this growth is not solely due to the current booming housing market.
From 2014 to 2021, LGI consistently experienced growth in home closings, average sales prices, and net incomes. The company has maintained gross margins in the mid-20% range. Management possesses significant ownership in the company, with 12.42% of shares remaining within the operation.
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Apart from owning physical real estate assets, there are various other ways to invest in real estate. Real estate stocks can provide investors with the advantages of owning real estate in a more convenient and cost-effective manner. Whether one is drawn to investing in apartment REITs or in builders who develop owner-occupied neighborhoods, there are numerous options available.
When evaluating real estate stocks, it is important to remember that the same rules apply as for any type of stock. It is crucial to search for companies that have attractive offerings, whether it be leasable real estate or purchasable housing stock. It is also important to ensure that these companies do not have a significant amount of debt, as this could potentially pose a serious risk in a downturn. The ability of the companies to effectively manage their finances is directly related to your own financial success. Additionally, if the management team owns a large portion of the company, it serves as strong evidence of their commitment to the company’s success and their own personal stake in that success.
