We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The return of growth stocks has been the story to start the new year, but another area that often gets overlooked during bullish periods are real estate investment trusts (REITs). Like growth stocks, REITs were decimated last year as the Fed embarked upon an aggressive rate-hiking scheme. Combined with prospects of an impending economic slowdown, REITs suffered their worst year in more than a decade.
This has created a phenomenal opportunity to buy these undervalued, oft-forgotten investment vehicles, as the path of future interest rates has reversed course. As per the Wall Street Journal, the Fed’s preferred medium, officials are preparing to slow interest rate increases for the second straight meeting after gaining more clarity that inflation will continue to ease this year. An outright pause may be in the cards as early as this spring, with rates set to fall in the years ahead.
REITs tend to outperform when interest rates are falling, historically generating strong returns when the Fed becomes more dovish. All else being equal, lower interest rates tend to increase the value of properties and decrease REIT borrowing costs. Furthermore, lower rates make the relatively high dividend yields generated by REITs more attractive, increasing their appeal to income-seeking investors.
Adding these incoming-producing investments can result in significant advantages over traditional real estate investing including increased liquidity, greater diversification, tax benefits and potentially higher returns with lower risk.
Real estate investment trusts either own or manage income-producing real estate, normally through directly investing in properties or the mortgages on those properties. The IRS mandates that REITs must pay out 90% of their taxable income to shareholders. This typically translates into much higher dividends than your average S&P 500 stock. One of the best ways to increase returns when investing in REITs is to compound the dividends received. Investors may also choose to utilize a Dividend Reinvestment Plan (DRIP), which automatically reinvests the dividends received into additional shares.
The Zacks REIT and Equity Trust – Retail industry has outperformed the market over the past three months, making a series of higher highs and returning more than 23%:
Image Source: Zacks Investment Research
Despite the impressive performance, this group remains relatively undervalued:
Image Source: Zacks Investment Research
Let’s take a closer look at an individual REIT within this outperforming industry group.
Equinix is a digital infrastructure company that enables leaders to harness a trusted platform to bring together industry-leading organizations. EQIX is a specialty REIT that was founded as a multitenant data center provider. The company focuses on providing a competitive advantage across clouds, networking, storage, and software.
EQIX operates nearly 250 data centers in 71 global markets across 32 countries. Its business is based on a recurring revenue model in which customers are billed at fixed rates through the life of respective contracts, generally ranging from 1 to 3 years. As we can see, earnings and revenue growth have remained steady:
Image Source: Zacks Investment Research
For the fourth quarter, analysts expect EQIX to have delivered EPS of $6.84/share, translating to growth of nearly 10% versus the same quarter in the prior year. Revenues are projected to have risen 9.14% to $1.86 billion during the quarter.
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This technique has proven quite useful for finding earnings surprises – in fact, when combining a Zacks #3 ranking or better and a positive earnings ESP, stocks have produced a positive surprise 70% of the time.
EQIX is currently showing a positive ESP at 0.54%. Combined with a Zacks Rank #3 (Hold) rating, another earnings beat may be in the cards when EQIX reports fourth-quarter results on February 15th.
REITs not only offer above-average yields, but also the potential for future price appreciation. Make sure to keep an eye on EQIX as well as the general REIT space as the group looks primed for a period of outperformance.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
REITs Back in Favor as Rate Path Becomes Clear
The return of growth stocks has been the story to start the new year, but another area that often gets overlooked during bullish periods are real estate investment trusts (REITs). Like growth stocks, REITs were decimated last year as the Fed embarked upon an aggressive rate-hiking scheme. Combined with prospects of an impending economic slowdown, REITs suffered their worst year in more than a decade.
This has created a phenomenal opportunity to buy these undervalued, oft-forgotten investment vehicles, as the path of future interest rates has reversed course. As per the Wall Street Journal, the Fed’s preferred medium, officials are preparing to slow interest rate increases for the second straight meeting after gaining more clarity that inflation will continue to ease this year. An outright pause may be in the cards as early as this spring, with rates set to fall in the years ahead.
REITs tend to outperform when interest rates are falling, historically generating strong returns when the Fed becomes more dovish. All else being equal, lower interest rates tend to increase the value of properties and decrease REIT borrowing costs. Furthermore, lower rates make the relatively high dividend yields generated by REITs more attractive, increasing their appeal to income-seeking investors.
Adding these incoming-producing investments can result in significant advantages over traditional real estate investing including increased liquidity, greater diversification, tax benefits and potentially higher returns with lower risk.
Real estate investment trusts either own or manage income-producing real estate, normally through directly investing in properties or the mortgages on those properties. The IRS mandates that REITs must pay out 90% of their taxable income to shareholders. This typically translates into much higher dividends than your average S&P 500 stock. One of the best ways to increase returns when investing in REITs is to compound the dividends received. Investors may also choose to utilize a Dividend Reinvestment Plan (DRIP), which automatically reinvests the dividends received into additional shares.
The Zacks REIT and Equity Trust – Retail industry has outperformed the market over the past three months, making a series of higher highs and returning more than 23%:
Image Source: Zacks Investment Research
Despite the impressive performance, this group remains relatively undervalued:
Image Source: Zacks Investment Research
Let’s take a closer look at an individual REIT within this outperforming industry group.
Equinix (EQIX - Free Report)
Equinix is a digital infrastructure company that enables leaders to harness a trusted platform to bring together industry-leading organizations. EQIX is a specialty REIT that was founded as a multitenant data center provider. The company focuses on providing a competitive advantage across clouds, networking, storage, and software.
EQIX operates nearly 250 data centers in 71 global markets across 32 countries. Its business is based on a recurring revenue model in which customers are billed at fixed rates through the life of respective contracts, generally ranging from 1 to 3 years. As we can see, earnings and revenue growth have remained steady:
Image Source: Zacks Investment Research
For the fourth quarter, analysts expect EQIX to have delivered EPS of $6.84/share, translating to growth of nearly 10% versus the same quarter in the prior year. Revenues are projected to have risen 9.14% to $1.86 billion during the quarter.
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This technique has proven quite useful for finding earnings surprises – in fact, when combining a Zacks #3 ranking or better and a positive earnings ESP, stocks have produced a positive surprise 70% of the time.
EQIX is currently showing a positive ESP at 0.54%. Combined with a Zacks Rank #3 (Hold) rating, another earnings beat may be in the cards when EQIX reports fourth-quarter results on February 15th.
REITs not only offer above-average yields, but also the potential for future price appreciation. Make sure to keep an eye on EQIX as well as the general REIT space as the group looks primed for a period of outperformance.