Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why AvalonBay Communities Rallied 20% in November

By Reuben Gregg Brewer - Dec 2, 2020 at 12:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It was a good month for the apartment landlord, but it's still in a difficult spot, and that won't change quickly.

What happened

Shares of real estate investment trust (REIT) AvalonBay Communities ( AVB 1.75% ) rose just shy of 20% in November, according to data from S&P Global Market Intelligence. Although that monthly gain is impressive, at the end of November the stock is still down by 20% for the year. 

So what

The big story, as is so often the case in 2020, is about the coronavirus pandemic. AvalonBay owns apartments in densely populated regions with high average incomes. That means its assets are located in and around large coastal cities. It is exactly these cities that are seeing an exodus because of fears surrounding COVID-19. To put a number on the impact this is having, AvalonBay's core funds from operations fell 12% year over year in the third quarter; this is why the stock has fallen so much this year.  

Two people watching TV on a couch.

Image source: Getty Images.

The November gain was driven by positive news on the coronavirus vaccine front. A series of drugmaker updates during the month made investors feel like there was a light at the end of the tunnel. That, in turn, led to a rally in hard-hit shares -- like AvalonBay -- that might benefit as the world finds a way to deal with the coronavirus. The problem is that AvalonBay's performance isn't going to turn materially higher in a single month -- it will likely take many months, or even quarters, before a vaccine is distributed widely enough to have a material impact on the trajectory of COVID-19. And only after that point is it likely that people will start returning to cities in material numbers.

Now what

AvalonBay is a well-run REIT and a long-term bet that cities will again draw residents. History suggests that this will play out, in time, as people gravitate toward cultural and social hubs. But the stock's quick upturn in November shouldn't be seen as a sustainable long-term trend. Indeed, if recent results are any indication, things are likely to get worse at AvalonBay before they get better.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AvalonBay Communities, Inc. Stock Quote
AvalonBay Communities, Inc.
$245.46 (1.75%) $4.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.