The Federal Reserve announced Wednesday that it would increase the short-term interest rate a quarter percentage point and possibly have two more hikes this year. The decision raises the funds rate to 1.75% from 2%. Interest rates have a profound effect on different industries, and one sector that higher rates tend to depress is real estate.
Real estate often looks appealing during low interest rate environments because real estate investment trusts (REITS) tend to pay high interest rates, appealing to investors searching for yield. According to a Charles Schwab market commentary, if interest rates continue to rise, investors could return to fixed income investments.
“As a result of this and other factors, we continue to rate the sector at underperform and believe that the better performance as of late is temporary and should not be chased,” Schwab wrote.
The other factors their research uncovered were an increased supply of apartment buildings that could make currently robust rents decline and an increase in Millennials moving from apartments into houses. They also listed pressure on department stores creating headwinds.
According to GuruFocus data, the real estate industry has a price-earnings ratio of 12.96, making it the cheapest sector by that measure in the market. Within the sector, real estate services have a price-earnings ratio of 12.23 and REITS are at 15.45.
According to the All-in-One Screener, the cheapest stocks in the real estate sector are: Investors Real Estate Trust (IRET, Financial), Alexander & Baldwin Inc. (ALEX, Financial), New Residential Investment Corp. (NRZ, Financial), Cherry Hill Mortgage Investment Corp. (CHMI, Financial) and IRSA Inversiones y Representaciones SA (IRS, Financial).
Investors Real Estate Trust (IRET, Financial)
Investors Real Estate Trust has a market cap of $681.970 million; its shares were traded around $5.68 with a P/E ratio of 4.37 and P/S ratio of 3.21. The trailing 12-month dividend yield of Investors Real Estate Trust stocks is 4.94%. The forward dividend yield of Investors Real Estate Trust stocks is 4.92%.
Investors Real Estate Trust is held by Jim Simons (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Alexander & Baldwin Inc. (ALEX, Financial)
Alexander & Baldwin Inc. has a market cap of $1.5 billion; its shares were traded around $20.91 with a P/E ratio of 4.29 and P/S ratio of 2.68. The trailing 12-month dividend yield of Alexander & Baldwin Inc. stocks is 0.66%. The forward dividend yield of Alexander & Baldwin Inc. stocks is 1.30%. Alexander & Baldwin Inc. had an annual average earnings growth of 10.30% over the past five years.
The investors tracked by GuruFocus with the largest positions in Alexander & Baldwin are Arnold Schneider (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Jim Simons (Trades, Portfolio).
Residential Investment Corp. (NRZ, Financial)
New Residential Investment Corp. has a market cap of $6.07 billion; its shares were traded around $18.07 with a P/E ratio of 3.99 and P/S ratio of 2.66. The trailing 12-month dividend yield of New Residential Investment Corp. stocks is 11.06%. The forward dividend yield of New Residential Investment Corp. stocks is 11.01%.
Jim Simons (Trades, Portfolio) and David Dreman (Trades, Portfolio) own the stock.
Cherry Hill Mortgage Investment Corp. (CHMI, Financial)
Cherry Hill Mortgage Investment Corp. has a market cap of $281.120 million; its shares were traded around $18.17 with a P/E ratio of 3.98 and P/S ratio of 4.60. The trailing 12-month dividend yield of Cherry Hill Mortgage Investment Corp. stocks is 10.78%. The forward dividend yield of Cherry Hill Mortgage Investment Corp. stocks is 10.75%.
Cherry Hill Mortgage Investment Corp. is owned by Jim Simons (Trades, Portfolio).
IRSA Inversiones y Representaciones SA (IRS, Financial)
IRSA Inversiones y Representaciones SA has a market cap of $1.09 billion; its shares were traded around $18.70 with a P/E ratio of 3.17 and P/S ratio of 0.34. The trailing 12-month dividend yield of IRSA Inversiones y Representaciones SA stocks is 7.37%. The forward dividend yield of IRSA Inversiones y Representaciones SA stocks is 7.34%.
IRSA Inversiones y Representaciones SA is owned by Ruane Cunniff (Trades, Portfolio) and Jim Simons (Trades, Portfolio).
See more real estate stocks at the All-in-One Screener here.
