If Thanksgiving Day celebrates nature’s bounty, Black Friday and the month thereafter is for retailers to rejoice in abundant sales. And can there be a better way to start the annual shopping bonanza than with optimism brimming in the market?
Specifically, a bigger-than-expected drop in initial Jobless Claims, a stronger-than-expected durable goods reading and better-than-expected income levels point to a healthy economic recovery. Moreover, high savings on cheap gasoline prices essentially indicate fatter purses this holiday season.
Also, data compiled by eMarketer suggest a 5.7% jump in holiday sales (November and December) to $885.7 billion and the National Retail Federation (NRF) estimates a 3.7% sales rise for the period to $630.5 billion (excluding autos, gas and restaurant sales). Moreover, online sales for the season are expected to increase 6–8% to approximately $105 billion.
Well, if all these numbers have made you upbeat on the retail sector, don’t forget to add some real estate stocks that house the retailers. Since increased retailing implies more activities at the retail properties, this is the right time to add these stocks to one’s buying list.
Jingle All the Way for REITs?
And why not? Won’t a rise in sales at physical stores and restaurants involve greater footfall at malls and shopping centers, creating further demand for space? You may say that the online buying is the now the name of the game, but how can one forget about the need for real space for storage and efficient distribution even that medium of retailing needs?
Importantly, while landlords give their malls a facelift, renovate them as swanky one-stop destinations for shopping, dining and entertaining, and make them distribution hubs, they also opt for overage rent agreements. Under such agreements, tenants (retailers) need to pay additional rent when sales attain a pre-specified target. So a good shopping season – whether online, or in physical stores or restaurants – can well translate into fatter wallets for landlords.
Moreover, despite the hype surrounding online retail, we find that firms have increased the number of planned store openings for the next two years, per an article from the National Real Estate Investor site (citing an August report from RBC Capital Markets). The study reveals 42,554 planned store openings for next year and 79,655 for the following two, reflecting a year-to-date hike of 4.1% and 4.2%, respectively, for the 12-month and 24-month periods. This strongly implies that space in malls and shopping centers is greatly in demand, giving retail landlords enough reasons to cheer.
Also, placed in the top 15% of the Zacks Rank list (this methodology ranks all of the 260+ industries based on the earnings outlook for the constituent companies in each industry), this category of REITs enjoys an overall positive outlook for the near term.
Therefore, despite high chances of a Fed-lift off next month, this favorable seasonal backdrop can add holiday cheer to the retail real estate investment trust (REIT) stocks.
Stocks to Buy
Here are the 3 stocks that we have handpicked for your Black Friday cart. Aside from having solid fundamentals and a decent dividend yield, these REITs hold a favorable Zacks Rank which indicates high chances of market outperformance over the next 1–3 months. These stocks are witnessing estimate revisions too reflecting analysts’ positive view on these stocks.
We suggest investing in Simon Property Group, Inc. SPG which holds a Zacks Rank #2 (Buy). This retail REIT, which has a long-term earnings growth rate of 8.5%, has been a steady performer delivering an average earnings surprise of 4.35% over the trailing four quarters. The stock has a dividend yield of 3.40%.
Estimate revision activities have been solid too, with the Zacks Consensus Estimate for 2015 moving up 9 cents to $10.14 for 2015 and 5 cents to $10.81 for 2016 over the past 30 days.
Taubman Centers TCO is another stock to bet on. Carrying a Zacks Rank #2 and with a long-term earnings growth rate of 7.4%, this Bloomfield Hills, MI-based retail REIT delivered an average positive earnings surprise of 7.09% over the trailing four quarters. The stock has a dividend yield of 3.13%.
This stock is also witnessing estimate revisions in the positive direction, reflecting investors’ bullish view on the stock. For 2015, the Zacks Consensus Estimate moved up 2 cents to $3.41 and 5 cents to $3.62 for 2016 over the past 30 days.
You can bet on EPR Properties EPR, as well. This retail REIT stock carries a Zacks Rank #2 and has projected sales growth of 10.72% for the current year as against the industry average of 2.50%. This Kansas City, MO-based company also has beaten the Zacks Consensus Estimate in the past four trailing quarters and delivered an average positive earnings surprise of 4.25%. The stock has a dividend yield of 6.47%.
Analysts are bullish on its prospects, reflected in its estimate revisions. For 2015, the Zacks Consensus Estimate has moved up 4 cents to $4.44 and for 2016 climbed 8 cents to $4.76 over the past 30 days.
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