Dream Stocks for Real Estate Investors

Investors are always hunting for the next big stock -- the dream stock whose price increases several times over when the market finally discovers it. It's easy to look back and see what the 10 best stocks of the past decade were. But I'm more interested in the tools that can not only help me find new stock ideas, but also have the resources necessary to evaluate tomorrow's greatest companies.

There is a tool that offers a variety of resources to help with finding tomorrow's leaders: Motley Fool CAPS, a 125,000-member community of investors helping each other beat the market.

We'll enlist CAPS to screen the real estate sector and get the story behind some of the more highly rated stocks. CAPS's nifty screener will help us find stocks with:

  • A market cap of at least $100 million.
  • A three-year revenue growth rate of at least 20%.
  • A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our CAPS members to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Below is a sample of stocks our screen returned. You can run this screen yourself -- remember, though, that your results may differ from ours as the market changes.

Company

Revenue Growth Rate, Past 3 Years

CAPS Rating (out of 5)

LoopNet (Nasdaq: LOOP  )

50.7%

*****

Jones Lang LaSalle (NYSE: JLL  )

25.1%

*****

Health Care REIT (NYSE: HCN  )

24.4%

****

Data and star rankings from CAPS as of Feb. 9.

LoopNet
Despite a shaky commercial real estate sector, online marketplace LoopNet's traffic has been increasing steadily over the past several years, and it averaged five million unique quarterly visitors in 2008, up 11% over 2007. The site has generated more than six times the web site traffic of its next-closest competitor during the fourth quarter of 2008, giving it a huge lead. The firm has been feeling the heat of competition from CoStar, though.

While some investors are concerned about LoopNet losing its edge, the $2 per share in cash and absence of debt on its balance sheet has many investors confident in the company's position. Even with the risk of invigorated competition and a bleak real estate market, nearly 97% of the 2,007 CAPS members rating LoopNet expect it to outperform the market.

Jones Lang LaSalle
Real estate services company Jones Lang LaSalle has made numerous acquisitions over the past couple of years, which has helped it to boost revenue in several core segments. Shares in the property management and services firm got a boost recently when the company posted better-than-expected revenue numbers and growth in some areas, despite the tough economy. Additionally, many CAPS members feel that the company is priced too cheap and has many assets that are valued below market.

One area of real estate where many see good opportunity in the near term is in distressed asset management. Jones Lang LaSalle's value recovery services group is quickly gaining business, acting as a third-party adviser to lenders trying to recoup investments in defaulting malls and commercial properties. It could be a potentially booming business over the next few years as mall REITs like Simon Property Group (NYSE: SPG  ) and General Growth Properties (NYSE: GGP  ) face increasing pressure in the retail environment, and as stores like Macy's (NYSE: M  ) and Sears Holdings (Nasdaq: SHLD  ) downsize. With opportunities to make money regardless of the direction of real estate, 97% of the 896 CAPS members rating Jones Lang LaSalle are bullish.

Health Care REIT
A soon-to-be member of the S&P 500, Health Care REIT recently announced the company's 151st consecutive quarterly dividend. As the health care sector has not been hit as hard as other sectors during the recession, the company maintains a generous 7.2% yield for investors. The company made more than $1 billion of new investments in 2008, and it plans to shed its smaller, lower-occupancy properties to pursue its strategy of buying large properties associated with high-quality health facilities. Seeing less risk, more than 95% of the 310 CAPS members rating Health Care REIT see the stock beating the market.

Let 125,000 members be the judge
The collective wisdom of a huge pool of investors can help give context to a page of numbers developed through a stock screen. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own due diligence.

Run your favorite factors through the Motley Fool CAPS screener. It's totally free, and we think you'll like the results.

The Motley Fool Hidden Gems service looks for companies with exceptional management and growth prospects. Check out what gems lead analysts Andy Cross and Seth Jayson are recommending today with a free 30-day trial.

Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns no shares of companies mentioned here. LoopNet and Jones Lang Lasalle are Motley Fool Hidden Gems selections. LoopNet is also a Rule Breakers selection. Health Care REIT is an Income Investor pick. Sears Holdings is an Inside Value recommendation. The Fool's disclosure policy screens the good, the bad, and the ugly.


Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 10, 2009, at 4:15 PM, HotCarNut wrote:

    It makes me laugh when people say that companies like Macy's, Sears, or Simon Property Group are going under. While GGP probably will fail and file bankruptcy (sooner rather than later), the others are in nowhere near as dire straits. Macy's is probably the next closest of the 4 because of their retail situation and leverage. Sears is really not much of a retailer anymore but instead is a real estate company that happens to sell tools, TVs, and clothes on the side. Simon Property Group has one of the most conservative balance sheets in the industry and owns some of the highest quality assets. Will they suffer some with tenant bankruptcies? Absolutely, but that's already baked into the stock price which has fallen over 60% from it's all-time high.

    In terms of managing distressed retail assets, who do you really think that the banks are going to call - JLL or SPG? I'm actually bullish on SPG as I see them picking up more management revenue because of their relationships with tenants and banks. It's a natural move when companies fail for the banks to turn to the industry leader to manage them and help turn them around for sale. In the US retail market, that leader is Simon.

    Who knows? Maybe I'm wrong, but then again, most of the people who will tell me I am also thought Google was going to $500 and staying there....

  • Report this Comment On February 11, 2009, at 8:52 AM, geniusorthug wrote:

    SPG is a potential bankruptcy candidate. SPG has 19 billion in debt. It shows a corresponding $19B in PP&E on its balance sheet -- that figure reflects the value that SPG has assigned to its properties on its balance sheet. To date, it has not written down the value of any of its properties. Conservatively, those properties have been impaired in the 30-35% range; possibly as much as 50%. With much of SPG's debt coming due later in '09, is that really what you'd call a strong balance sheet with? Now lets look to the P&L side; Q4 revenue was down, Q109 is likely to be a bloodbath. SPG has already cut its dividend by 90% (yes I know it is "paying" its dividend in stock -- essentially a worthless dilution of existing shareholders, a privilege for which many holders wil be taxed). Add to this a retail macro migration away from brick and mortar to online, and there is little good to say about SPG's future. SPG may be the "best of breed" managers and have the best locations, but I am sure that the same could have been said about the best of the buggy whip manufacturers at the turn of the 19th century. Disclosure: I have a position in SPG put options with various expirations in 2009.

  • Report this Comment On February 11, 2009, at 2:48 PM, HotCarNut wrote:

    geniusorthug - Welcome to US GAAP accounting rules. That is HISTORICAL COST, not fair value of the assets. Over 1/3 of SPG's properties are completely unlevered according to the 8k filing - pgs 46 - 53 list out the debt. A basic count eliminating the corporate bonds vs the total number of properties on the US and Intl property tables gives you a good rough estimation. Total SPG Share of Debt (consolidated and JV) is $24.4 Billion including corporate debt. Total Share of Investment Properties AT COST is $26.9 Billion AFTER accumulated depreciation.

    As for debt coming due this year, out of the $26.9 Billion, only $1.9 Billion is up in 2009 and roughly $3 Billion is up in 2010. Of the $1.9 billion, 900M is related to unsecured debt. The remainder is either secured by properties, which the financing market is still working, or is JV property debt. Given that free cash flow AFTER the historical dividend for SPG is roughly 500M, the payment of 90% of the dividend in stock saves the company roughly 900M in cash (declared dividend times # of shares outstanding times 90%). This would give SPG 1.4 billion to pay off debt in case the credit markets fail completely. This further ignores the cash on hand as well as the available credit facility. I may not like the call on the dividend, but I do think that it was prudent given the change in the tax laws allowing the lower cash component, and the rumblings from their competition that they were going to either completely suspend their dividends or pay the minimum 10% in cash to satisfy tax laws. Capital is king right now, and SPG has more powder dry with less exposure than just about anybody. Keep in mind, they're the only REIT with an "A" grade debt rating from both major agencies.

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