If You Prefer to Walk Than Swing for a 'Home Run' Stock, This Is for You

I love seeking out stocks that could make huge moves from my purchase price. I'm willing to take large positions in non-dividend paying shares offering chances to double or better. Many other people, though, are content with logging decent gains on low-risk stocks, while collecting income while waiting. Today's column is for them. Simon Property Group is America's premier operator of higher-end, also called Class-A, shopping malls. The whole industry was tested mightily when government-imposed lockdowns of their properties were implemented during the Covid crisis of 2020. Simon not only survived, but prospered. Fund from operations (FFO), the preferred metric for evaluating Real Estate Investment Trusts dropped from $12.04 per share pre-Covid, to $9.11 in 2020. Since then, however, it has rebound to $11.94 in 2021. Dividends per share dipped from $8.30 in 2019 to $5.85 in 2021 as cash flow declined due to the lost sales and rent collections when operations were shut down. The current annual rate is back to $6.60 with at least a small increase expected by year-end 2022. As of Monday, SPG shares looked cheap, as they continued to sell for less, on an absolute price basis, than they did a full decade earlier. How many things can you buy today at less than their 10-year ago prices? Total return, including dividends, failed to keep up with the value created as well. What is SPG really worth after taking into account all that transpired over the past few years? Pre-Covid, Simon often commanded 18 - to-19-times FFO while paying about 3.0% to 3.2% yields. Post-Covid, P/FFOs declined while yields were higher based on the lower share prices. Over the entire decade ended Dec. 31, 2021 SPG's typical P/FFO was about 15.8-times, accompanied by around 3.97% in current yield. Simply rebounding to that long-term average valuation based on P/FFO suggests a Dec. 31, 2022 price target of almost $185 per share. Reverse engineering the current $6.60 per share dividend rate to 3.97% delivers a $166.24 year-end goal. Even the lower-end number would make for a solid 39.5% total return if it takes a full 12-months to get there. Reaching my higher end target in one year would provide 45.3% in total return. How many readers would be satisfied would returns like that on their entire portfolios? Various research houses differ slightly on where they think SPG should be trading. Yahoo Finance takes a somewhat more conservative view than I take. Even so, hitting its 12-month target would deliver an attractive 34.2%. Quantitatively-based FastGraphs sees Simon going to $164.76 by Dec. 31, 2022. That's very much in line with my own projections over the coming nine months. Morningstar calls SPG a 4-star, out of 5, buy after watching it drop from north of $171 to south of $132 since last November. Morningstar deigns to provide future price targets but does let us know they see present-day fair value as $160. As such, its year-ahead evaluation is likely in total harmony with all the other research house views. SPG is a clearly underpriced security which pays about 5% in current yield while you wait for the market to come to its senses. I go to the King of Prussia Mall in my area and I often have trouble getting a parking space close to my destination. That's not a scientific measure, but it is a good sign that people are happily back to in-person shopping as a recreational activity they sorely missed during the pandemic. Option-savvy traders can collect nice premiums via short sales of puts out to Jan. 20, 2023 or Jan. 19, 2024 expiration dates. Buy some SPG shares, sell some SPG puts or consider doing both.

If You Prefer to Walk Than Swing for a 'Home Run' Stock, This Is for You

Here's why Simon Property Group could give you a good score while you sit on the bench.

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