Swimming Against the Current: Contrarian Investment in Oversold REITs
In the ever-flowing river of the stock market, sometimes going against the tide can lead to opportunities. A contrarian approach involves going against the prevailing market sentiment when you believe that it has gone to an extreme, and this is where potential opportunities arise.
Identifying Oversold Stocks
As a majority of investors are currently engaged in selling, the market conditions have led to certain stocks becoming technically “oversold.” In the world of technical analysis, indicators like the 14-period relative strength index (RSI) and fast stochastics have reached extreme points, suggesting a possible reversal.
REITs Under Pressure
Real estate investment trusts (REITs) have faced pressure due to higher interest rates, inflation concerns, geopolitical tensions, and shifting economic outlooks. Consequently, many REITs have witnessed a substantial selloff in recent days. An RSI below 30 and a stochastic reading below 20 indicate oversold conditions.
Exploring 3 Oversold REITs with Potential
- CubeSmart (NYSE:CUBE)CubeSmart, a self-storage REIT based in Malvern, Pennsylvania, operates 1,338 storage facilities across 41 states and Washington, D.C. Since its IPO in 2004, it has grown its funds from operations (FFO) per share by 242% between 2012 and 2022, with a recent same-store occupancy rate of 92.1%.On October 24, Wells Fargo analyst Eric Luebchow downgraded CubeSmart from Overweight to Equal-Weight, with a reduced price target of $37, citing recent market conditions. However, on September 18, Stifel analyst Steve Manaker reiterated a Buy rating with a price target of $50, representing a potential 42% increase.CubeSmart offers a quarterly dividend of $0.49, yielding 5.6% annually, and has shown a 53% dividend growth over the past five years.
- VICI Properties Inc. (NYSE:VICI)VICI Properties, a diversified REIT based in New York, specializes in owning and operating gaming, hospitality, and entertainment properties. Its portfolio includes renowned Las Vegas hotels like Caesars Palace and MGM Grand.VICI Properties has maintained its position despite rising interest rates due to over 40% of its leases incorporating 2% to 3% annual lease escalators for inflation. This has eased concerns about inflation’s impact on VICI Properties.Despite recent market fluctuations, VICI Properties may be poised for a reversal, as its RSI was at 29, and the stochastic was at 5.
- Easterly Government Properties Inc. (NYSE:DEA)Easterly Government Properties, an office REIT, specializes in acquiring, developing, and managing Class A commercial properties leased exclusively to government agencies. With 90 properties across 26 states, it boasts a 98% occupancy rate and a weighted average lease term (WALT) of 10.4 years.The company has been actively acquiring properties recently, including a Department of Homeland Security facility and a U.S. District Courthouse. Easterly pays a quarterly dividend of $0.265, yielding 10.1% annually, but investors should monitor the payout ratio in the upcoming quarterly report.Easterly’s 14-period RSI stands at 26.89, and the fast stochastic is at 1.79, suggesting a potential rebound.
Uncovering Opportunity in Oversold REITs
In a market where opportunities are often concealed, the overselling of certain REITs may present investors with a chance to seize value. Staying informed and vigilant in monitoring these stocks could lead to favorable outcomes. For further insights into the REIT market, sign up for the Weekly REIT Report by Benzinga’s real estate research team.