Guess What These REITs Have in Common With Apple

Few things are harder to deal with than buying a stock cheaply, then watching it get even cheaper. Does the rest of the world know something you don't? Or, is the ridiculously low valuation a great opportunity? Run the numbers, then compare the current metrics to the same company's own normal numbers. If all looks good, then keep the faith. Almost every time patient investors will be well rewarded. That is especially true when dealing with high-yielding shares like Real Estate Investment Trusts, or REITs. Kimco Realty looked cheap in the spring of 2017, at $17. By April of 2018, it had sunk further, finally bottoming out at $13.16. KIM hadn't been available at such a low price-to-funds-from-operations ratio, or P/FFO, since the dark days of 2009. At its nadir it yielded 8.51%, more than double its typical payout. Momentum players and never catch a falling knife believers would never have touched KIM after a two-year, 59% plunge. Too bad for them. By November 2019, KIM had rebounded 66.1% to $21.86. Including dividends that 18-month hold generated over 88% in total return. How could anyone have bought that low? Those who ran the numbers would have found it easy. KIM's FFO ran $1.50 in 2016 when the shares fetched $32.20. FFO in 2018, when KIM bottomed, was only down five-cents or 3.33%. Did that mild dip in FFO justify a greater than 66% decline? No way. Note, too, that KIM's yield at 2016's peak was 3.17% vs. about 8.5% at the subsequent low. As of its December 2019 peak, KIM was no longer a particular bargain, based on P/FFO. My end of 2020 target price now sits at $22.35 suggesting about 7%-8% in year-ahead total return. By the time momentum players feel comfortable getting back in the upside is often unimpressive. So, what looks today like Kimco did in April of 2018? Two other REITs that are currently hugely out of favor appear poised to deliver outstanding results. They are Simon Property Group and Macerich . Simon Property Group is widely considered to be The Gold Standard of mall REITs. In April of 2016, SPG peaked at $229.10 in a year destined to provide $10.49 in FFO. In mid-December, investors could have owned it for under $143, around 11.5-times trailing 12-month's FFO of $12.40 per share. Over those same few years, SPG's annual dividend rate also increased sharply, from $6.50 to $8.30 -- up 27.7%. That was a huge disconnect between perception and reality. From 2016 through 2019, SPG's FFO rose by $1.91, or 18.2%, while the stock declined by $86.70, or 37.8%. Buyers who ignored the crowd, as Kimco's believers did at its bottom, were getting much more value for much less money. Simon Property hadn't actually changed hands for as low as its December nadir since the summer of 2013. My very conservative end of 2020 price target is $219. Plus, SPG, at its Dec. 31 close of $148.96 was paying a generous and well-covered 5.63% yield. All you need is faith that over time, SPG will benefit from reversion to the mean valuation action. What's wrong with at least 47% in potential upside along with 5.63% while you wait? Industry cohort Macerich does not quite measure up to SPG's standard. Its absurdly low absolute price and double-digit yield, though, might end up seeing its holders do even better than SPG's. MAC made reasonable operating progress over the last nine years. Like KIM and SPG, its shares were battered without mercy. Contrarian thinkers can now own the stock below the lows dating back all the way to 2009. Amazingly, MAC now yields north of 11%, more than double its past decade's typical level. Even a partial reversion to the mean valuation, based on year-ahead analyst projections, could send MAC back up to greater than $50. That goal is far from an upper limit. Note that, from 2011 through 2018, MAC fetched peak prices ranging from $56.50 to $95.90. During 2010 and 2019 traders could have sold for north of $47. MAC's enormous upside has not been lost on those running the company. Since last May there were 22 insider buys vs. a single, very small, insider sell. Net purchases totaled greater than $4.1 million from MAC's top executives -- such as its chief executive -- and numerous directors. The time to get bargains is before everybody else gets wise. The year 2019's biggest Dow Jones gainer was Apple AAPL. Most people have forgotten that in early January of last year, it was out of favor, and available for $142. That was just under 12-times forward EPS. As of Dec. 31, AAPL fetched $293.65 while trading for 24.7-times trailing EPS. Now it's quite popular at more than double last January's valuation. Don't fall into the trap of avoiding cheap stocks simply because nobody likes them at the moment. Moods, and share prices, can change as quickly as the weather, rewarding those who lean against prevailing winds. I've been a major buyer of both SPG and MAC over the past few weeks. Tax-selling pressure is now gone. Buy SPG and MAC before they skyrocket back to what they are already worth.

Guess What These REITs Have in Common With Apple

Remember where AAPL was January 2019? Cheap compared to now -- moods and share prices can change quickly, and probably will for these stocks.

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