Why REITs Could Have a Monster 2025 By LUCAS DOWNEY, CONTRIBUTING EDITOR, TradeSmith Daily Back in May, we pounded the table to own the worst sector of the market: Real Estate stocks.
The group's been hated since 2022, and just three months ago it fell to one of the cheapest valuations since the COVID crash took everything down.
But in our data-driven view, it was only a matter of time before this under-owned sector jumped on the radar of savvy investors.
Fast-forward to today, and Real Estate Investment Trusts (REITs) have flown to heights few thought possible. Since the June CPI report on July 11, Real Estate stocks have outperformed Technology names by 18.3 percentage points!
And with the Fed teeing up rate cuts beginning in September, I think the REIT rebirth is in its early innings.
Today, we'll dive into why REITs could have a monster year in 2025.
As a bonus, I'll include one of my favorite REITs I've owned for years that has recently reached the buy-zone... The Sudden Market Leaders The June CPI report was a line-in-the-sand moment for the macro environment. It solidified that the Fed's war on inflation was over.
From that moment on, odds of an interest-rate cut in September have effectively stood at 100%.
As you'd imagine, with interest rates set to decline, yield-sensitive sectors have dominated returns. From July 10 – Aug. 27, Real Estate stocks have gained a whopping 11.25%.
Utilities and Consumer Staples, also known for their hefty yields, have had juicy returns of 8.95% and 6.83%, respectively. Let's give a shout to the grandmas and grandpas!
These dividend groups reveal the powerful rotation out of Information Technology as well as Communication Services, under which companies like Google (GOOG) and Meta Platforms (META) are technically categorized. In the same timeframe, those are negative to the tune of -7.06% and -6.03%, respectively, while Consumer Discretionary is likewise down -5.24%: 
This dichotomy in sector returns can be explained by the breathtaking decline in interest rates the last few months.
In April the 10-year U.S. Treasury yield reached 4.7%. At last measure, it's fallen nearly 100 basis points, to 3.83%.
This new falling-rate reality has greatly enhanced the attractiveness of dividend-yielding stocks, especially Real Estate companies.
The following chart shows the inverse relationship between the iShares U.S. Real Estate ETF (IYR) and the 10-year yield. When rates zig, REITs zag: 
That's a beautiful illustration of why REITs are a top choice to own now and into the future.
With Wall Street betting that the Fed is set to ease policy to the tune of over 100 basis points in the next 12 months, putting money on REITs is less of a gamble and more of a "house bet," in my opinion.
The more rates fall, the more attractive Real Estate stocks appear. Now, let's laser in on one of my favorite companies to play this uptrend into 2025. This Real Estate Stock Unlocks a Store of Value When investors think of REITs, most think of office buildings and residential homes. But the Real Estate sector is vast, with many industries to choose from: data centers, infrastructure, health care facilities, retail, timberland and more. Most of them are equity REITs (where you invest directly in a real estate portfolio), but there are also mortgage REITs (where you share in the interest income from mortgages).
Be choosy, because just like in the Technology sector there's a wide array of leaders and laggards. Focusing on all-star businesses is mission critical.
That's why I like the economics of Extra Space Storage (EXR). (Full disclosure, I've owned this name for many years.)
The company's name spells out exactly what this business does: It offers storage units for those needing extra space for their items.
Founded in 1977, with an IPO in 2004, the firm is one of the largest self-storage operators in the United States; it has 1,895 stores under management.
On a one-year basis, the stock has absolutely crushed the S&P 500, having gained 40% versus 27% for the large-cap index: 
Clearly this REIT must have something fundamentally attractive to have outperformed while other REITs were still lagging. (Real Estate as a group was up more like 17% during that time.) And it does!
Revenues keep climbing year after year, as does its Funds from Operations (FFO). FFO is similar to earnings for stocks, but a more appropriate measure for REIT cash flow.
In December 2021, revenues stood at $1.6 billion and Core FFO clocked $6.91 per share. 2024 estimates see revenues ballooning to $3 billion and Core FFO reaching $8.07 per share.
I should also mention that EXR paid an annual dividend of $4.50 per share in 2021 and currently pays an annualized dividend of $6.48. That pegs the forward dividend yield at a juicy 3.7%.
Leading stocks in leading sectors are how you find tomorrow's biggest winners. It's that simple.
And at TradeSmith we have click-of-a-button ways to know if a company is ready to take off now. One of them is called the Quantum Score. Readings above 70 are the green light, indicating that the company has healthy fundamentals and technicals, including institutional support. That "Big Money Index" is the secret sauce in Quantum Edge Pro and other advisories helmed by my business partner, Jason Bodner. Extra Space Storage is right in the middle of the green buy zone, with a 74.1 overall Quantum Score: 
This score is what drove me to EXR years ago... and based on the macro setup, this stock is bound for higher prices in 2025.
Don't make investing complicated, and don't forget to turn over a lot of stones in your investing journey.
TradeSmith was one of the first research shops to signal brighter days for the left-for-dead real estate group.
And it's still an overlooked area...which means more opportunity is in store.
There's a vast world of real-estate stocks poised to zoom in 2025. Use cutting-edge software like TradeSmith to fill in the "extra space" (information void) missing. That's how you win! Quantum Edge Pro subscribers can check that same Quantum Score for just about any stock right on their TradeSmith Finance dashboard. Then there's Jason's model portfolio, trade alerts, weekly updates and videos.
And to get you started with the strategy, Jason shares a stock pick for you during a free presentation on his new "Project Greenlight" – go here to watch now. Regards, Lucas Downey
Contributing Editor, TradeSmith Daily | 
Tidak ada komentar:
Posting Komentar