Should Investors Consider Real Estate Stocks In Their Portfolio?
Although the stock market has performed incredibly well as of late, there are still some attractive options that may be under-the-radar. Real estate stocks are one of the places that could present opportunities to investors. There’s a great chance that the sector could benefit when there’s an injection of stimulus into the economy. Of course, the recent events at the Capitol would have triggered some selling. But for top real estate stocks, the impact has been rather mild, if there’s any.
“Employment and economic activity are pillars of real estate,” said John Kim, a real estate investment analyst at BMO, “although concerns about the inflationary impact of government spending is typically a headwind for the industry.”
Sure, the hotel and office sectors have yet to see any real improvement because of the raging coronavirus pandemic. That’s because retail and office real estate investment trusts (REITs) were hit especially hard as a result of shutdowns and work-from-home mandates. Even some of the top REITs in the stock market lagged behind the S&P 500 in 2020. However, there appears to be a turnaround story for the real estate industry. For instance, Vanguard REIT ETF (NYSEARCA: VNQ) is yielding just over 4% at current prices. That handily beats the broader market and is almost four times the 10-year Treasury yield.
COVID-19 Vaccines Are Pushing Real Estate Stocks Higher
There’s no doubt that the industry faltered over the past year. However, since the approval of COVID-19 vaccines, real estate stocks are back on investors’ radar. Commenting on the vaccine, Tai Hui of J.P. Morgan Asset Management said, “This offers a ray of hope that the market did not hesitate to take advantage of.”
The roll-out of COVID-19 vaccines is signaling the eventual end of the pandemic and REIT stocks are poised for 2021 rebound. That said, there may be no better time to start looking at top real estate stocks to buy now. Considering the iShares Global REIT (NYSE: REET) rose nearly 17% in the past two months, there’s a good chance that the industry could recover and even rebound strongly. That’s assuming a speedy rollout of vaccines to the population. After all, real estate has dramatically underperformed the S&P 500. If we believe in mean reversion, real estate could be in store for a major rebound this year. While no one has the ability to predict the future, could these three real estate stocks bring big gains to investors this year?
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Top Real Estate Stocks To Watch Right Now
Simon Property Group
First up, Simon Property Group is one of the largest REITs and shopping mall operators in the U.S. As of December 2019, it had interests in over 204 properties, including more than 100 malls and 69 premium outlets. Despite the weaknesses in the sector, the retail landlord has done relatively well in the stock market. It rose more than 50% in the past six months.
Sure, there are still headwinds ahead for the company since the coronavirus is not showing signs of stopping yet. The move toward online shopping has put a dent in the company’s balance sheet. Certainly, pointing fingers at the novel coronavirus for causing such collapse would be understandable. The truth is though, many of the shopping malls were not exactly performing very well, to begin with. Some were even going out of business even before the pandemic. It seems to me that the pandemic has simply sped these things up.
Although 2020 has been a tough year for Simon Property Group, it also presented an opportunity for long-term investors. From the company’s third-quarter results, it still managed to report a net income of $145.9 million. Considering the harsh business environments for these cyclical industries, not losing money is already a respectable feat for the company. Additionally, SPG stock has one of the more impressive dividend yields in the sector at 6.25%. Therefore, it has built up a good head of steam heading into 2021. Of course, it is still early to say since the pandemic is still a pressing issue most businesses have to deal with. Investors will have to look at the upcoming quarterly results to decide if SPG stock is one real estate stock worth buying.
Investing in the real estate industry doesn’t always have to have to involve REITs or stocks that are real-estate oriented. Porch.com, a software company that connects homeowners and home service providers, can be an alternative way to bet on the real estate industry. The company collects homeowner data so it can sell additional services like TV, internet, and other home products. You could say that Porch.com aims to disrupt the traditional retail industry.
For starters, Porch.com just recently completed its merger with PropTech Acquisition (NASDAQ: PTAC), a publicly-traded special purpose acquisition corporation (SPAC) last month. Going through the SPAC merger must have brought some excitement considering SPAC stocks have been bringing great returns to shareholders. But it is important to note that Porch.com has yet to be profitable. From the company’s preliminary financial results for 2020, it anticipates a net loss of $53-$55 million range. This is about $20 million more than it previously indicated in its public filings. According to the company, the higher loss came from higher spending on marketing and research and development.
With mortgage rates sitting near historic lows, there’s a good chance that many are looking to purchase real estate in the near term. The question is, could this be the year for PRCH stock to take off?
Similar to Porch.com, Redfin Corp is another trending company in the real estate market. The selling point in investing in RDFN stock is that it is an online service that makes listing and shopping for a home easier, especially remotely.
Redfin is one of the big players in this space. Now in over 90 markets in the U.S. and Canada, the online brokerage company is selling and buying more than 235,000 homes a year. Investors have to note that this isn’t an overnight phenomenon. We saw the evolution that took place with the online car retailer, Carvana (NYSE: CVNA). Carvana saw massive success during the pandemic. Now, online real estate brokerages are part of a trend that may be the next evolution in real estate transactions in the consumer market. Investors looking for pure-play online real estate brokerages can also consider Opendoor Technologies (NASDAQ: OPEN). The company aims to eliminate some of the complexity in real estate transactions by offering a quick and easy to close a deal without a middleman.
Investors who like disruptive businesses would probably be attracted to Redfin’s business model. The stock is up 158% in 2020, and it’s using that new capital to expand its operations around North America. The company is also in a growth phase which should last for a while given the extremely low-interest rates we have today. Should the company continue to scale up, RDFN stock could be one top real estate stock worth putting on your watchlist.