Bank of America says investors looking to capitalize on the recent rally in real estate stocks should focus on quality. The S&P 500’s real estate sector was in the red at the beginning of the year, but has been on the rise over the past month or so, and is up 10% year-to-date. The sector hit a 52-week high last week. Real estate investment trusts are also a way to earn income and often pay attractive dividends. “In a Fed rate cutting environment, stocks with healthy yields are becoming more attractive,” Jill Carey Hall, the bank’s equity and quantitative strategist, wrote in a Sept. 9 memo focused on small- and mid-cap REITs. “It’s becoming more and more attractive.” He also added that research on small- and mid-cap stocks suggests that dividend yield is the best hedge against cycle risk. .SPLRCR YTD Mountain S&P 500 Real Estate Sector The US Federal Reserve began its rate cutting cycle last week, cutting the federal funds rate by 50 basis points. The central bank also signaled it would cut rates by another 50 basis points by the end of the year. In this environment, Bank of America favors healthcare, housing, and retail REITs. Hall said healthcare real estate is a play on America’s aging population, with more people seeking medical services and senior housing. He added that residential REITs continue to be in demand given housing affordability issues, with the majority of retail REITs outperforming and raising guidance. Analyst Jeffrey Specter, head of the bank’s U.S. REIT division, said he considers high-quality growth, high-quality value, and high-quality risk in anticipation of a soft-landing scenario when picking a particular stock. We suggest that you pay attention to stocks that have the following. “Higher quality REITs will provide the highest income and distribution growth,” he wrote in the same note. His quality REITs have resilient pricing power, multi-year return visibility based on long-term growth drivers, strong and flexible balance sheets, and the best prospects for global capital inflows. Masu. Here are some of the names chosen for Specter’s Top Picks list. Welltower was the only large-cap stock to make the list. The rest are small-cap and mid-cap REITs. Welltower owns and develops senior housing, skilled nursing/post-acute care facilities, and medical office buildings. Bank of America believes that in the short term, Welltower will benefit most from accelerated occupancy growth during the post-COVID-19 recovery. “Furthermore, we believe interest rate growth in senior housing will remain strong through 2024 and beyond. WELL has the highest exposure to senior housing assets in our scope, and based on our demographic analysis, The portfolio is optimally positioned,” the bank said. “Over the long term, demographic trends are positive as the baby boomer generation continues to age.” Welltower stock is up 40% since the beginning of the year. Mid-America Apartment Communities and American Homes 4 Rent are both residential buildings. The former is a multifamily REIT operating in communities in the Sunbelt region, where the region is expected to experience strong job growth and lower costs of living. The latter owns the second-largest single-family rental REIT portfolio in the United States, Spector wrote. “We continue to be positive about AMH’s portfolio, limited new supply of single-family homes, structural demographic tailwinds from aging millennials, increasing consolidation and development opportunities, and strong management,” he said. ” he said. Mid-America apartment communities are up nearly 18% since the beginning of the year, and American Homes 4 rents are up nearly 7%. Finally, Federal Realty Investment Trust owns, operates, and develops retail-based real estate in coastal markets. Spector said the “premier retail REIT” has a diversified portfolio of shopping centers and should deliver growth that outperforms its peers over the long term. The stock price has increased more than 9% since the beginning of the year.
