With the Federal Reserve not cutting interest rates yet and continued homebuyer trepidation thanks to high prices and high mortgage rates, it’s understandable why investors may not consider real estate stocks to be best play right now. Indeed, general sentiment around real estate seems to be more negative today than it has been for the past several years. However, there are still some surprisingly lucrative options to take advantage of in this space.
While traditional real estate may not be thriving right now, some real estate stocks are still managing to make impressive gains. Here are three interesting plays that may prove fruitful — even as the rest of the market lags behind.
Stocks to Play the Real Estate Market: Lennar (LEN)
Lennar (NYSE:LEN) is one of the largest U.S. homebuilders, second only to D.R. Horton (NYSE:DHI). In 2023, both firms saw share price declines amid interest rate uncertainty. But while both have rebounded since the beginning of 2024, Lennar has fared much better. LEN stock is up 12% year-to-date (YTD) while DHI stock is up just 5%.
The key to Lennar’s continued success lies in current home-selling trends. Many homeowners who bought before 2023 are choosing not to sell thanks to their historically low mortgage rates. So, that leaves new construction as one of the only options for new homebuyers.
Lennar operates in 75 markets across 26 states and for the last several years has grossed revenue well above third-largest U.S. builder PulteGroup (NYSE:PHM). The company is not the largest builder, so it has room to grow. But it’s also nowhere near the smallest, giving it great stability in the current market.
On TipRanks, 11 out of 17 analysts rate LEN stock as a buy. In comparison to the Vanguard Real Estate ETF (NYSEARCA:VNQ), Lennar has outperformed the wider real estate sector by more than 50% over the past 12 months. In its most recent earnings report, the company’s EPS also beat analyst estimates by 36 cents, or 16%.
While things may be rocky in the real estate market right now, Lennar is managing to be one of the real estate stocks still producing strong results.
Welltower (WELL)
Welltower (NYSE:WELL) is a real estate investment trust (REIT) heavily invested in senior living facilities across the United States, Canada and the United Kingdom. When you consider the rapidly aging population in the U.S. alone who may need specialized assistance and living facilities in the coming years, it makes sense why WELL stock is a good choice among real estate stocks.
According to reports, the population of individuals aged 65 and older in the U.S. is set to “climb to roughly 80.8 million residents […] by 2040, more than double the number in 2000.” Consequently, the demand for assisted living is only expected to grow. The companies providing places for seniors to live — whether they be independent living situations or assisted facilities — stand to gain from this demographic shift.
Of the 14 analysts covering WELL stock, nine rate it as a buy while five rate the stock as a hold. WELL also appears to have healthy upside in comparison to competitors, with an average price target of $100.07 per share. Finally, Welltower’s fourth-quarter results beat estimates, with both revenue and funds from operations (FFO) coming in higher than expected. The company is also continuing to expand via a recent agreement to purchase a portfolio of 25 “age-restricted active adult communities” for $969 million.
Builders FirstSource (BLDR)
When new housing starts are up, the companies that supply homebuilders with materials tend to benefit as well. So, it stands to reason that Builders FirstSource (NYSE:BLDR) — the largest U.S. supplier of building products — is a safe bet among real estate stocks. As previously mentioned, new home builders have been a surprising winner of the real estate market. As they continue to grow, suppliers stand to do well, too.
With the recent collapse of the Francis Scott Key Bridge in Baltimore, Maryland, costs of certain goods may also skyrocket as they become more difficult to import amid the shutdown of a major port. According to CNBC, Home Depot (NYSE:HD) is one of the major home improvement retailers that could be affected by the closure. It remains to be seen whether this hurts or helps the bottom line of companies like Builders FirstSource, but it’s something to consider nonetheless.
Year-to-date (YTD), BLDR stock is up more than 20% in 2024 — substantially higher than the other picks mentioned on this list. Furthermore, in the last one year, BLDR stock is up nearly 140%.
On TipRanks, nine out of 13 analysts rate shares as a buy. Although the current 12-month forecast indicates upside of only about 3%, the market for building products should continue to remain strong, regardless of what the Fed does. With several hedge funds and institutional investors also buying up shares, things seem overall positive for BLDR stock.
On the date of publication, Philippa Main did not hold (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.
