We recently published a list of The 10 best real estate and property stocks to buy according to hedge funds. In this article, we take a look at how Public Storage (NYSE:PSA) compares to other real estate and property stocks.
US real estate market: A market that has been stuck in a dead end for too long
Rising mortgage rates and skyrocketing home prices have long pushed American homebuyers out of the market. The situation appears demoralizing, as economists at Bank of America expected the market to remain stagnant until 2026 or even longer. Home prices are expected to rise 4.5% in 2024 and another 5% in 2025. A critical issue weighing on first-time buyers is the rate lock-in effect, the effect that causes existing homeowners to be reluctant to sell their homes because they will have to pay a higher mortgage on a new home. Although this effect has limited the supply of homes on the market, it could continue for another 6 to 8 years. Under such conditions, the gap between rich and poor has widened, as current homeowners have more financial flexibility while a large portion simply cannot afford a home.
Long-awaited Fed rate cuts: What can we expect?
With mortgage rates currently falling to their lowest levels since May 2023, demand for mortgages from both homebuyers and homeowners has skyrocketed as applications to refinance a home loan increased. The real estate industry is looking with great interest at the rate cut announced by the Fed for September. Some experts believe that this may ease homebuyers’ affordability concerns in the short term. However, the cut is expected to be small rather than repeating the historically low interest rates seen during the pandemic. On the contrary, Nick Villa, an economist at Moody’s, believes that the rate cut is unlikely to solve the housing crisis, although a lower mortgage rate could provide some relief. Even after the rate cut, homebuyers will have to be patient with the limited housing supply, which remains the central and unresolved problem in the market.
It is important to also consider the impact of Fed interest rates on homebuilders. Stephen Kim, head of housing research at Evercore ISI, explained in an interview with CNBC how the current falling rates have prepared homebuilders for a nice fall that will bring a rebound in demand. He pointed to the same problem of tight supply, as there is a 3.8 month supply of used homes available on the market in the U.S., while it was usually 5 to 6 months. Under these circumstances, he expects a very tight market with little pressure on home prices. While the actual Fed rate cut may not have a major impact on mortgage rates, it will drive potential homebuyers out of their apartments to look for a home. In summary, the future of the U.S. housing market appears promising for homebuilders, while homebuyers may be temporarily satisfied as the rate cut will not have as much of an impact on mortgage rates and on a market severely plagued by the unavailability of homes.
Our methodology:
To create a list of the 10 best real estate and land stocks to buy according to hedge funds, we first use a stock screener to create an expanded list of relevant companies with the highest market capitalization. We then selected the top 10 stocks from our list that had the highest number of hedge fund holders. The 10 best real estate and land stocks to buy according to hedge funds were sorted in ascending order of the number of hedge funds holding shares in them (as of Q1 2024).
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
Aerial view of a thriving self-storage facility demonstrating the company’s expertise in acquisition and development.
Public Storage (NYSE:PPE)
Number of hedge fund holders: 36
Public Storage (NYSE:PSA) is an owner, operator and developer of self-storage facilities. The company opened its first self-storage facility in 1972 and has since become the world’s largest owner and operator of self-storage facilities. It is also one of the largest landlords in the world, with more than 15 million square feet of net leasable space.
Public Storage (NYSE:PSA) is clearly a leader in the self-storage industry. With 51 years of operation, 3,369 properties, 2023 revenue of $4.5 billion, and thousands of locations across the U.S. and Europe, the company occupies a significant place in the industry. With half of the U.S. population living in a Public Storage trade area, the company has unmatched scale and locations as a competitive advantage. Its income growth profile also outperformes the broader real estate space. While high-growth rental properties now make up 22% of the total portfolio, the company has accelerated its external growth for itself.
Since the beginning of 2019, the company’s portfolio has grown 35% through $11 billion in investments and a 56 million square foot expansion. Stable revenue generation, a growth-oriented balance sheet and the potential for robust external growth make Public Storage (NYSE:PSA) an iconic brand with consumer recognition. Public Storage (NYSE:PSA) ranks 10th among the best real estate and property stocks to buy now.
Total PSA takes 10th place on our list of the best real estate and property stocks to buy. While we recognize PSA’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than PSA but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
