Although the prospect of an economic downturn rippling across the waters is not an encouraging picture, one of the best investment ideas for productive protection is REITs to buy for a bear market. Providing a wide canvas, these specialized investment vehicles offer passive income and the possibility of moving against the grain.
First, let’s define the central concept undergirding REITs to buy for a bear market. Real estate investment trusts own or finance properties that cover a range of industries. For instance, rather than acquiring shares of meme-ish movie theater stocks, you can choose to acquire REITs that own the actual property where cineplexes and other high-foot-traffic establishments operate.
Second, are very attractive because of their corporate structure. Through its primary business of leasing space and collecting rent, the best REITs to buy for a bear market feature consistent revenue streams. From there, REITs must pay at least 90% of their taxable income to shareholders in the form of dividends. Therefore, while you wait out the market, you can passively grow your portfolio.
During this inflationary cycle, any little bit to preserve purchasing power matters. Here then are seven REITs to buy for a bear market.
|PEAK||Healthpeak Properties, Inc.||$26.02|
|FRT||Federal Realty Investment Trust||$100.27|
|DLR||Digital Realty Trust, Inc.||$137.25|
|VNO||Vornado Realty Trust||$29.39|
|WPC||W. P. Carey Inc.||$86.57|
Healthpeak Properties (PEAK)
Perhaps one of the most insulated REITs to buy for a bear market, Healthpeak Properties (NYSE:PEAK) focuses on the life science, medical office and retirement community sectors. It has formulated and maintains a strategy to invest in private-pay healthcare real estate, per its website. Although down nearly 33% on a year-to-date basis, PEAK stock might make for a very intriguing discount.
Mainly, the coronavirus pandemic has sparked a coming of age for the broader life sciences industry. As part of its efforts to combat Covid-19, biotechnology firms both large and small contributed their expertise to forward treatments and vaccines. Specifically for Healthpeak, its campuses are based in San Francisco, Boston and San Diego — the beating hearts of biotech innovation.
As well, the medical office segment, which provides various outpatient healthcare services, is a hot segment. For instance, in San Diego, the sector experienced a lift in leasing to the tune of 77% in 2021.
Public Storage (PSA)
One of the most intriguing REITs to buy for a bear market, Public Storage (NYSE:PSA) is the world’s largest owner, operator and developer of self-storage facilities. The company controls nearly 2,500 facilities across the U.S., serving more than one million customers, according to its website. Most importantly, Public Storage aligns with demographic and economic realities.
As the Wall Street Journal detailed late last year, companies in the self-storage space benefitted handsomely as demand for facilities willing to hold American households’ extra stuff skyrocketed. Part of this rise in the industry stems from baby boomers, who well before the pandemic were looking to downsize as they entered their golden years.
But the new normal may also spark downsizing for people who still have many years to pedal the economic machinery. With inflation getting out of control, it may make more sense to rent storage space for their clutter while moving to smaller residential units to save on living expenses. That bodes well for PSA stock.
Federal Realty (FRT)
While the consumer economy is taking a hit because of escalating prices, the reality is that the sector won’t capsize completely. That’s where Federal Realty (NYSE:FRT) enters the picture, one of the most viable REITs to buy for a bear market.
Commanding a portfolio of over 100 strip malls and mixed-use developments, Federal Realty enjoys a wide canvas, thus facilitating some economic insulation.
Better yet, most of the company’s properties (more than 70%) are tied to the grocery sector. Cynically, no matter how stressed household budgets are, they can’t skimp on food and water unless circumstances have become dire. Even then, government assistance programs should help keep the grocery industry afloat, which in turn benefits FRT stock.
Another reason to consider FRT as one of the REITs to buy for a bear market is the passive income. Yes, the company pays out a 4.5% yield currently. But far more critically, its website mentions that it increased the annual dividend rate for 54 consecutive years.
Digital Realty (DLR)
Whenever the discussion for REITs to buy for a bear market comes up, people tend to think about consumer staples or other permanently relevant industries. While it’s not a bad idea if your main priority is protection, you can also move into the technology sphere with companies like Digital Realty (NYSE:DLR). Specializing in data centers, DLR is not going anywhere anytime soon.
For one thing, Digital Realty owns one of the world’s largest portfolios of data-center facilities. As well, the company enjoys a clientele list incorporating some of the biggest names in business, including Amazon (NASDAQ:AMZN), Verizon (NYSE:VZ) and Adobe (NASDAQ:ADBE).
Most importantly for DLR stock, of course, the push for greater connectivity is only expanding. Increasingly, innovations such as the Internet of Things help tie disparate devices and systems into a cohesive whole for end-users. This mechanism won’t go anywhere unless data centers are around to bolster the digital communication express lanes.
Vornado Realty Trust (VNO)
As a provider of premium office space, Vornado Realty Trust (NYSE:VNO) is admittedly risky. Mainly, with the pivot to telecommuting, many professionals are openly wondering what the physical workplace is for.
Should the revolt against employees being recalled to the office gain steam, Vornado may find itself in quite a pickle.
Indeed, VNO stock is down 30% year-to-date through the June 27 session. Over the trailing month, the stock has dropped 17.3%. Is it still one of the REITs to buy for a bear market? If you have a contrarian view, the answer could be yes.
First, it’s important to acknowledge that work from home could be over. Workers can cry all they want about Covid-19 fears, for instance. But this is a lot like atheists demanding time off for religious reasons at this point in the game.
Second, should a recession hit the economy, desperate workers who have been discriminated against in the past — say baby boomers or older Generation X folks — could swoop in, happily coming into the office in exchange for a paycheck.
Fundamentally, Welltower (NYSE:WELL) is one of the best REITs to buy for a bear market, especially if you have the patience to ride out some market chop. Welltower is in the medical space, specifically focusing on senior housing. From there, you can see where I’m going with this. WELL stock stands on the precipice of a major demographic paradigm shift.
According to the Pew Research Center, up until 2019, baby boomers represented the nation’s largest living adult generation. Shortly after the calendar turned to 2019, however, millennials became the largest living adult demo. Still, the point is that baby boomers don’t just disappear into the night sky. Instead, there is a process of care involved, boding very well for Welltower.
Though WELL had a bit of a wobble recently (it’s down 7.8%% over the last month), over the trailing-year basis, it’s holding up reasonably well, up 0.3%. While economic rumblings could make WELL stock shake7, patient investors should keep the ultimate demographic prize in mind.
WP Carey (WPC)
One of the problems with any investment heading into a possible economic downturn is that shocks to a particular segment can easily filter down into others. That’s why analysts often talk about recession-resistant stocks instead of recession-proof stocks. In reality, nothing is completely insulated. With that in mind, those seeking REITs to buy for a bear market should consider WP Carey (NYSE:WPC).
Billed as a leaseback build-to-suit real estate finance firm, WP Carey is a net lease REIT. This structure helps mitigate the risk of a possible recession because the REIT’s lessees are responsible for most of the underlying property’s operating costs. Such a business model suits WP Carey because it owns more than 1,300 properties, making WPC a relatively low-risk investment.
An interesting point to note is that a majority of WP Carey’s leases have rent escalators associated with inflationary dynamics. Essentially, the company can pass on the costs of rising prices to lessees, thus making WPC a relevant name for our times.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.