11 Most Undervalued REIT Stocks to Buy According to Hedge Funds

Ramish Cheema
10 min read

In This Article:

In this piece, we will take a look at the 11 most undervalued REIT stocks to buy according to hedge funds. If you want to take a look at the top five stocks in this list and skip our introduction to the real estate industry then take a look at 5 Most Undervalued REIT Stocks To Buy According To Hedge Funds.

The real estate industry is one of the most watched sectors these days. Like the banking industry, it is also highly sensitive to interest rates, and naturally, construction and real estate management firms have seen a vastly different operating environment these days after the Federal Reserve's rapid interest rate hikes.

However, not all real estate firms are equal when it comes to disruption from the high interest rates. In fact, the home building industry has been one of the strongest sectors this year and one that has been pushed to the background only because of the strong performance of technology stocks. As an illustration, the S&P Homebuilders Select Industry Index has appreciated by 31.7% year to date, posting nearly twice the gains of the S&P500 index which has appreciated by 16% this year. Adding to this strong performance, hedge funds are cognizant of the reality as well. As the second quarter of 2023 hedge fund SEC filings started to flow in, they also included a nice surprise for the home building industry. This surprise came in the form of Warren Buffett's Berkshire Hathaway scooping up $814 million of shares in NVR, Inc. (NYSE:NVR), Lennar Corporation (NYSE:LEN), and D.R. Horton, Inc. (NYSE:DHI) - some of the largest home building companies in America. Mr. Buffett's big stake investment came as the firms smartly navigated the high rate environment by leveraging the high margins they had secured for themselves during the high demand of the coronavirus pandemic to offer buyers lower mortgage rates even as interest rates stand at multi year high levels. For more details about the construction industry, you should check out 15 Biggest Construction Companies in the World.

The booming and bustling of residential real estate has not unfortunately translated into other segments. One of the worst performing real estate segments this year is office real estate. These projects often require significantly higher investments than home building projects, and these require large scale financing and hundreds of millions of dollars in debt that has to be repaid for decades. So any turbulence in the economy or working conditions ripples through to office firms and real estate management trusts (REITs) and this has been the case this year as well. Office loans crossed a 5% delinquency rate in July, as it nearly tripled over the year ago figures. Office real estate companies are facing troubles on multiple fronts. For starters, the high interest rates, and the uncertainty surrounding a terminal rate that prevailed last year, made securing credit and loans for large projects difficult. To add to this, the high rates also make it difficult to repay debt, and as if this weren't enough, office workers are not returning to work as quickly as expected, leaving many buildings vacant and their owners seeing the corresponding revenue drops.

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