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3 REITs for the Next Bear Market

By Liz Brumer – Dec 11, 2021 at 8:20AM

Key Points

  • Bear markets are an inevitable part of our economic cycles and shouldn't necessarily be feared.
  • REITs can be reliable stocks to add to your portfolio because of their reliable dividends.
  • American Tower, Prologis, and Realty Income are three great REIT buys for when the market turns.

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These stocks are likely to rebound quickly in a bear market, making this a great time to buy high-quality REITs at a discount.

Assuming a market correction or even a market crash could be in the near future is not crazy thinking. The last 11 years, from 2009 to early 2020, marked the longest bull market in stock market history. The market correction that came with the onset of the global pandemic in early 2020, for some, signaled the end of our great "bull run." But given how quickly the markets recovered and have well surpassed pre-pandemic highs, it seems to many that we're right back in the midst of an unstoppable bull market. Others have reason to believe in the potential for another correction.

But, even if they come, bull markets don't last forever. Inevitably, the stock market will fall and take on the much-dreaded bear market moniker. Many of the stocks that shot up over the past decade will see some level of price correction.

Bear knocking over bull on top of columns.

Image source: Getty Images.

Savvy investors know that bear markets are an incredible time to double down on select stocks and real estate investment trusts (REITs) because they are trading at a discount. While there are countless high-quality REITs to choose from, here are three that really stand out as great buys during the next bear market.  

1. American Tower

When it comes to real estate, it's important to choose operators in industries that are not only backed by high demand today but will be well into the future. Growing reliance on technology, data, and cloud storage isn't going to change anytime soon. Providers like American Tower (AMT 4.17%), one of the largest cell tower REITs in the world and the largest REIT by market cap, are a big part of what keeps our world connected. The company has a global presence, operating and leasing around 219,000 communication sites in Africa, Latin America, North America, and Europe.

Despite its already massive footprint, it's still expanding rapidly, having acquired two data centers and 4,369 new communication sites primarily in international locations in the third quarter alone while continuing its rollout of 5G technology. That 5G deployment accelerated the company's metrics in the third quarter, with revenue increasing 21.9% year over year, adjusted funds from operations (AFFO) growing by 13.3%, and net income up 56.9%.

The company recently announced the acquisition of data center REIT CoreSite Realty (COR) for $10 billion, a deal set to close by the end of the year. This move will help solidify American Tower's position as a premier provider in our data-driven world.

There's are clear continued growth opportunities here, but American Tower's expensive share price makes it a hard sell in today's market. A bear market should offer a great opportunity to stock up on this top-performing REIT.

2. Prologis

Prologis (PLD 2.52%) is the largest industrial REIT operator in the world today. It is next in line behind American Tower when it comes to market cap and another behemoth company that dominates the industry it operates in. And given that industrial real estate is experiencing incredible growth and unparalleled demand, it's a great industry to be in.

Prologis owns and leases roughly 4,675 industrial properties, which equate to nearly 1 billion square feet under management across some of the world's top markets. Voracious demand for warehouse and logistics space has pushed the company's rental rates and revenue to record highs over the past year, with space being effectively sold out within its operating markets. 

Effective rent rates rose 27.9% year over year in the third quarter of 2021, with a mere 3.4% vacancy rate. Historically, Prologis has performed incredibly well, providing investors with a 22.08% annualized return over the past 10 years and seven straight years of dividend growth.

All that being said, the company is also trading at a premium, meaning a bear market might present a better opportunity to grab shares in this reliable company at a reasonable price. 

3. Realty Income

Retail is one of those sectors that investors either love or avoid. Considering the rise in e-commerce, the future of retail has become somewhat unstable. And while retail may not look the same in 20 years as it does today, it won't go away altogether. This fact makes Realty Income (O 2.99%), one of the largest and most dependable retail REITs in the market today, a great buy in the event of a bear market.

Realty Income started and continues to primarily operate in the retail sector, with roughly 83.7% of its portfolio being single retail properties, shopping centers, and malls. Over the past year, however, the company has dramatically expanded its portfolio into international locations and merged with VEREIT, which adds to its office exposure. As of Q3 2021, Realty Income has interest or ownership in 7,018 commercial properties, including industrial, office, agriculture, and retail.

The company has instituted 112 dividend increases since going public in 1994 and it maintained a 15.23% annualized return since IPO, with 24 out of 25 positive years of growth. It definitely prides itself on being a dependable, trustworthy REIT, which has led share prices to become quite costly in recent years. A bear market would be a prime opportunity to snag this company at discounted prices while being backed by one of the highest-quality portfolios in the REIT industry today.

Compelling bear market buys

Bear markets shouldn't be feared -- they are what allow for money to be made so swiftly in the bull market that inevitably follows. Knowing what to purchase and when is key. REITs, in particular, can be great buys in down markets because they often pay competitive dividends while providing exposure to a diverse range of high-quality real estate assets. And these three REITs should be great buys during the next bear market.  

Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends American Tower. The Motley Fool has a disclosure policy.

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