This week's announced $2 billion merger of DTX and Cushman & Wakefield involves two privately held commercial real estate giants, but you can still take advantage of the sector's good times by buying stock in rival Jones Lang LaSalle (JLL).
DTX disclosed on Monday that it's buying Cushman & Wakefield for $2.04 billion in an apparent bid to compete with Jones Lang and CBRE Group (CBG), the segment's two biggest players.
The merger comes at a moment of great strength for the commercial real estate industry. As The New York Times noted in its coverage of Monday's announcement: "These are heady times globally in the commercial real estate business, which has generated plenty of work for the companies that service those properties."
It remains to be seen whether additional deals in the sector emerge, but for now, two of my "guru" strategies like JLL shares. These strategies are computerized facsimiles of investment approaches used by some of Wall Street's greatest gurus. I created them years ago, and they've proven their worth ever since by producing solid returns in the real world.
My Peter Lynch and James P. O'Shaughnessy strategies both give Jones Lang high marks. The Lynch strategy likes JLL because of a favorable PEG ratio. PEG, or "price-to-earnings-to-growth," measures how much an investor is paying for earnings growth. A PEG of up to 1.0 is acceptable under my Lynch screen, and Jones Lang's shares come in at 0.64.
The O'Shaughnessy strategy endorses JLL for several reasons. The company has a large market cap ($7.3 billion), its earnings per share have risen in all of the past five years and JLL's price-to-sales ratio is 1.32 (1.5 is the maximum allowed). The stock also has a relative strength reading of 87.
That last measure gauges how well a stock has performed in the past 12 months when compared to the overall market. The O'Shaughnessy strategy looks at all stocks that get past the first three hurdles listed above, then picks the 50 domestic companies that have the highest relative-strength numbers.
Jones Lang makes it into this elite group. It's a leader in a strong market, management is doing a good job and my guru strategies find that the company's stock is well priced.
So, now is a good time to take advantage of the commercial real estate market's strength and buy JLL shares.