The combination of price corrections and stable fundamentals has resulted in a sizable valuation discount. At the same time, both companies have strong fundamentals and financials (more on this later). In the turbulent year of 2022, these two individual stocks actually showed LOWER volatility than the sector, losing only 5.5% and 7.8% respectively, against the sector average of 18%. The first chart shows the resilience of these two businesses. The following two charts already do a good job showing why we like O and SPG better. In the remainder of this article, we will elaborate on the above in more depth following a framework developed by Ben Graham (the framework we used to do our screening in the first place).

And in the meantime, our investigation also found two individual REIT stocks that we like even better than the sector: Realty Income Corporation ( NYSE: O) and Simon Property Group, Inc. Our conclusion is that the current REIT sector is indeed attractive, not because of a few overweight stocks. Plus, as value investors, experiences have taught us that if a sector is attractive, we can always find some attractive individual stocks in the sector that are even more attractive - if we just do some extra work.Īnd we did the extra work. Therefore, it is always a good idea to check the trees' level after looking at the forest. Sometimes, a sector was made attractive or unattractive only because of a few dominating stocks in the sector. As such, it is our view that the sector is poised to rebound given that the recent rate hike may well be the last one. As shown in the chart below (BTW, welcome to download it here), the REIT sector (approximated by VNQ) is currently the second top-ranked sector in terms of its yield spread against risk-free interest rates, coming only after the energy sector. Recent market fluctuations have made the real estate investment trust ('REIT') sector an intriguing opportunity.

Alpha & Omega by Patricia Briggs