The weightings of the S&P 500 have increasingly become both an advantage and a curse for the index. Technology companies now make up 27.3% of the index. That’s up significantly in recent years. This means that the market’s appetite for technology companies, both newer and longer-standing public companies, has pulled in massive amounts of cash.
Technology stocks have been a great source of stock price appreciation since March 23. The Information Technology Index returning a whopping 39.7% over the trailing year. And that includes the drop in September of 12.1%. One of the challenges is the fundamental valuation of the average underlying companies in the tech sector.
S&P Information Technology Index Price to Earnings, Price to Book & Price to Sales — Source Bloomberg Finance, L.P.
In my Profitable Investing portfolios, I’ve recommended many investments in the sector, but two other sectors have performed even better.
We’ll talk about one of them today, and I’ll even give you a bargain buy I like.
Valued Real Assets
Think back to past market slides, particularly for technology during such bouts in 2018, when sectors such as real estate investment trusts (REITs) carried the day.
As it turns out, REITs have outperformed technology stocks and the general market for the past month.
REITs have tangible real and hard assets that are difficult or impossible to replicate specifically. Land is land, and they aren’t making any more of it.
Yet, the stock market has this sector on the cheap this year. The underlying weighted average book value of all of the REITs inside the Bloomberg US REIT Index is at $111.97. This is up by more than 10% over the past five years. But the stock market has the average price to intrinsic (book) value at a mere 2.39 times. That’s down significantly from just earlier this year.
Bloomberg US REIT Index Price to Book & Book Value — Source: Bloomberg Finance, L.P.
Now of course, just like the underlying real estate, there are lots of REITs in the wrong properties during the COVID-19 pandemic. Hospitality and retail are no-go places. But if you can find the right kind of REIT, you’ll collect dividend yields well above those offered by stingy tech companies as well as the general market average as tracked by the S&P 500 Index.
One bargain pick I like in this market is Life Storage (NYSE:LSI).
LSI is a REIT that manages self-storage properties, and it operates across the United States, and in Ontario, Canada.
Not only does LSI have the defensive self-storage market well in hand, but the Warehouse Anywhere service provides localized warehouse space with active onsite management. It’s gaining ground in the remote-working and shop-at-home markets.
The simple truth is that in good times, people buy more stuff, and in bad times, they have to move and store that stuff. That makes a stock like this an excellent addition to your portfolio.
On the date of publication, Neil George did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine…one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.