By James Dennin for Kapitall.
New home sales fell more than
expected this month
, and May's numbers were revised downward. Taken together, the two
readings suggest a housing market that is still troubled.
However, Matt Phillips of
isn't "sweating it,"
according to a Tweet he posted
Thursday morning, pointing out that the long-term trend is actually
, which tracks five different measures for housing growth,
paints a slightly better picture. Four out of the
five measures-home sales, mortgage delinquencies, construction
starts, and home-price levels-are all normalizing.
Only one metric-youth unemployment, described here as workers
aged 24-35-has struggled consistently over the last year to gain
momentum. Its disproportionate effect on the housing market
makes sense because that demographic previously invested most
in new homes.
In case there is undue pessimism about the housing recovery,
thinks is already over
, we decided to look for some undervalued stocks that could benefit
disproportionately from the trend.
To do that, we looked for
undervalued residential real estate investment trusts
by looking for companies that had a
trading price well below their Graham
REITs are like mutual funds for real estate, which serve as a
holding company for various real estate assets.
We wanted our screen closely correlated to the housing recovery,
so we narrowed it to residential REITs and diversified REITs, which
hold lots of different kinds of real estate, often including
We then narrowed that list of around 70 stocks to companies
trading below their Graham number, which is an approximate
valuation of what the stock
be worth based on earnings and book value. This left us with three
REITs on our list.
Do you think they'll gain momentum if the housing recovery
continues? Use the list below to begin your analysis, and let us
know what you think in the comments.
Click on the interactive chart to view data over
1. Capstead Mortgage Corp.
): Operates as a self-managed real estate investment trust in
Dallas, Texas. Market cap at $1.26B, most recent closing price at
Diluted TTM earnings per share at 0.99, and a MRQ book value per
share value at 12.65, implies a Graham Number fair value =
sqrt(22.5*0.99*12.65) = $16.79.
Based on the stock's price at $13.18, this implies a potential
upside of 27.36% from current levels.
2. Starwood Property Trust, Inc.
): Focuses on originating, investing in, financing, and managing
commercial mortgage loans and other commercial real estate debt
investments, commercial mortgage-backed securities, and other
commercial real estate-related debt investments. Market cap at
$5.31B, most recent closing price at $23.99.
Diluted TTM earnings per share at 1.98, and a MRQ book value per
share value at 16.34, implies a Graham Number fair value =
sqrt(22.5*1.98*16.34) = $26.98.
Based on the stock's price at $23.23, this implies a potential
upside of 16.15% from current levels.
3. Resource Capital Corp.
): Operates as a specialty finance company that focuses primarily
on commercial real estate and commercial finance in the United
States. Market cap at $718.3M, most recent closing price at $5.56.
Diluted TTM earnings per share at 0.35, and a MRQ book value per
share value at 6.2, implies a Graham Number fair value =
sqrt(22.5*0.35*6.2) = $6.99.
Based on the stock's price at $5.57, this implies a potential
upside of 25.45% from current levels.
(List compiled by James Dennin. Monthly returns sourced from
Zacks Investment Research, Graham Number data sourced from Google
Finance. All other data sourced from Finviz.)
Kapitall Wire is a division of New Kapitall Holdings, LLC.
Kapitall Generation, LLC is a wholly owned subsidiary of New
Kapitall Holdings, LLC. Kapitall Wire offers free investing
ideas, intended for educational information purposes only. It
should not be construed as an offer to buy or sell securities, or
any other product or service provided by New Kapitall Holdings,
LLC, and its affiliate companies.