Given the frequently aired view that retail is dying, a shopping center-focused REIT may seem like an unlikely pick right now. Recently, Q3 earnings have demonstrated that that view is overly simplistic. Brick and mortar retail is not dying -- it is transforming, and companies that have seen that and acted appropriately are doing just fine. Site Centers (SITC) fits that bill and is one of my top picks, not just in retail but overall, as it hits on multiple levels.
There are many ways of picking a stock. You can look for growth potential, or current value. You can take a “bottom up” approach, starting with an individual company’s performance and prospects, or a “top down” one that begins with global or domestic economic conditions, then drills down through market trends, industry prospects, and other big picture analysis until you arrive at one stock to buy. Or maybe you start with the technical analysis, looking for a particular pattern or signal first, and only looking at the fundamentals of the company and industry once that is found.
I have a dealing room background, which means that I approach every investment opportunity from a trader’s perspective. For example, I look at the chart and look for a good entry point and good exits, either to cut losses or take profits. That, however, is rarely my starting point.
I set out by trying to assess what everybody else is likely to do. Are they nervous and looking for a level to sell or watching for signs that others are selling? Are they gung-ho buyers, piling on risk at every opportunity? Or are they cautious bulls, seeking out value and yield? Right now, with stocks near record highs, steady growth, low inflation and with some unresolved risks such as trade, the latter mood is most likely to prevail and SITC offers both value and yield.
The numbers hint at the value, with a trailing P/E of under 12 and a negative PEG ratio, but you have to dig a little deeper to find the real story. SITC is a company that lost its way for a while. They got a bit overstretched, with multiple joint ventures and a variety of projects, but now, with the changes in the retail environment, they are becoming more focused. Selling off some projects has negatively affected growth over the last year or so, but it has shored up the balance sheet and set them up for a return to growth over the next few years.
Not that growth is the story here. With a yield of 5.6%, just maintain the status quo will be enough for decent performance in a market that is grinding upwards.
Site Centers is to some extent a counterintuitive pick, but if you believe that the story over the next year or so is going to be a steady rise in stocks, it pushes all the buttons. It is relatively cheap, so offers a good chance of capital appreciation, and yet yields around three times as much as the 10-Year T-Note. That is good enough for me.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.