3 Cheap REITs to Buy Now

by Zach | September 22, 2013 9:00 am

All eyes were on the Federal Open Market Committee on September 18 as investors awaited an update on the direction of QE3.

The verdict: no taper.

This came as a surprise to many, and the stock market immediately jumped higher while bond yields fell. One group of stocks that rallied the most right after the announcement was real estate investment trusts (REITs).

Considering how beaten down REITs have been since the Fed first hinted at tapering back on May 22, this rally isn’t surprising. And with tapering off the table at least until the Fed’s next meeting on October 29-30, REITs may just see a strong resurgence over the next several weeks.

Guilt by Association

A common misperception is that over the last couple of years, yield-starved investors bid up all dividend stocks to untenable valuations and that the recent selloff amid the taper talk was just a normal correction for these overbought securities.

That may have been the case for some dividend stocks – REITs included – but not all. Nonetheless, many stocks sold off heavily this summer despite solid fundamentals as investors indiscriminately sold high-yielding stocks.

Now these same stocks look downright cheap with some trading at discounts to their historical averages, which encompasses eras of much higher interest rates.

3 Cheap REITs

So what are some cheap REITs to buy now?

I ran a screen on Research Wizard[1] in search of REITs (1) trading at least 10% below their 52-week highs, with (2) forward price-to-funds from operation (FFO) multiples below 12, (3) a Zacks Rank of 2 (Buy) or better, and (4) a dividend yield over 3%.

Here are the 3 names from the list:

Campus Crest Communities (CCG[2])

Percentage from 52-week high: -23%

12-month forward P/FFO multiple: 11.7x

Dividend Yield: 5.9%

Zacks Rank: 2 (Buy)

Campus Crest Communities is a REIT that develops, builds, owns and manages high-quality student housing properties located close to college campuses in targeted U.S. markets. It has ownership interests in 84 student housing properties and over 44,000 beds across the United States.

Hospitality Properties Trust (HPT[3])

% from 52-week high: -12%

P/FFO multiple: 9.3x

Yield: 6.5%

Zacks Rank: 2 (Buy)

Hospitality Properties Trust is a REIT that owns, but doesn’t operate, 289 hotels and 185 travel centers located throughout the United States, Ontario, Canada and Puerto Rico.

Cedar Realty Trust (CDR[4])

% from 52-week high: -24%

P/FFO multiple: 10.2x

Yield: 3.9%

Zacks Rank: 2 (Buy)

Cedar Realty Trust is a real estate investment trust that owns shopping centers, primarily grocery-anchored shopping centers straddling the Washington, DC to Boston corridor.

The Bottom Line

With tapering off the table for now, REITs could see a relief rally over the next several weeks. And these 3 REITs appear to be particularly well-positioned to run higher.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research[5] and Editor of the Income Plus Investor service[6].

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Learn More>>[7]

CAMPUS CREST CM (CCG): Free Stock Analysis Report[8]

CEDAR SHOPN CTR (CDR): Free Stock Analysis Report[9]

HOSPITALITY PRP (HPT): Free Stock Analysis Report[10]

Endnotes:
  1. Research Wizard: http://woas.zacks.com/zcom/researchwizard/tools3.php?site=adid=TOP_ONLINE_NAV
  2. CCG: http://void(0)
  3. HPT: http://void(0)
  4. CDR: http://void(0)
  5. Zacks Investment Research: http://www.zacks.com
  6. Income Plus Investor service: http://www.zacks.com/incomeinvestor/
  7. Learn More>>: http://at.zacks.com/?id=10438
  8. CAMPUS CREST CM (CCG): Free Stock Analysis Report: http://www.zacks.com/registration/pfp?ALERT=ZR_LINK&d_alert=rd_final_rank&t=CCG&ADID=INVESTORPLACE_CONTENT_ZR_ARTCAT_INVESTMENT_IDEAS
  9. CEDAR SHOPN CTR (CDR): Free Stock Analysis Report: http://www.zacks.com/registration/pfp?ALERT=ZR_LINK&d_alert=rd_final_rank&t=CDR&ADID=INVESTORPLACE_CONTENT_ZR_ARTCAT_INVESTMENT_IDEAS
  10. HOSPITALITY PRP (HPT): Free Stock Analysis Report: http://www.zacks.com/registration/pfp?ALERT=ZR_LINK&d_alert=rd_final_rank&t=HPT&ADID=INVESTORPLACE_CONTENT_ZR_ARTCAT_INVESTMENT_IDEAS

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