January 3, 2024 9:49 am | 2 minute read
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With the Federal Reserve pricing in four interest rate cuts in 2024 at the latest Federal Open Market Committee (FOMC) meeting, market participants are increasingly focusing on interest rate-sensitive sectors of the economy.
Lower interest rates generally make borrowing cheaper, which can stimulate demand for real estate. Therefore, companies involved in real estate development, property management, and real estate investment trusts (REITs) tend to benefit from lower interest rate regimes.
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With interest rates expected to fall in 2024, we’ll focus on three real estate stocks that are currently trading at favorable valuations.
See also: November FOMC Minutes: Fed leans toward stabilizing interest rates as inflation eases
- Forester Group Co., Ltd. (NYSE:FOR) — This real estate development company DR Horton Co., Ltd. (NYSE:DHI), known for its expertise in acquiring land and converting it into single-family residential communities. We develop the necessary infrastructure and sell completed lots to local, regional, and national home builders. Targeting regions with growth potential and favorable economic conditions, we optimize the sale price of residential real estate and achieve solid financial returns. With a P/E GAAP (FWD) of 9.45, FOR stock trades at a discount of more than 75% to the sector median.
- City Office REIT Investment Corporation (NYSE:CIO) — This real estate company focuses on acquiring and managing prime office properties primarily in Sunbelt markets. Currently, City Hall owns or maintains a controlling interest in his 5.7 million square feet of office real estate. Valuations in the office REIT sector have fallen, prompting investors to scrutinize the evolving office environment more closely. At 9.33 P/AFFO (FWD), this REIT stock is trading at about a 40% discount to the sector median. CIO stock also comes with an attractive AFFO Yield (FWD) of 9.59%.Rich Hill, Head of Real Estate Strategy Cohen & Stairs (NYSE:CNS) recently shared optimism regarding the evolving dynamics within the office REIT segment.
- EPR properties (NYSE:EPR) — This diversified REIT specializes in enduring experiential assets. EPR manages approximately $5.7 billion in assets across 44 states, with a focus on facilities that provide leisure and recreational experiences. The firm maintains rigorous underwriting and investment standards with a focus on industry, real estate, and tenant cash flow. In terms of valuation, EPR stock is trading at 9.36 P/AFFO (FWD), which is very attractive compared to the sector median price of 15.40 (representing a ~40% discount to the sector). EPR stock also boasts an impressive AFFO Yield (FWD) of 10.16%.
Read now: How interest rates will affect REITs in 2024 — Opinion from Rich Hill of Cohen & Steers
Option 101: Beginner’s Guide
Want to become an options master? Options expert Nic Chahine’s free report includes 4 perfect tips for beginners, the secret to earning 411% in options, and his proven success. Provides access to ‘plans’. Get your free copy of Options 101: The Beginner’s Guide as soon as possible.
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