Investors are on high alert now that the stock market has officially entered a correction as of Monday, Jan. 24, 2022. As unpleasant as they may be, market corrections are a natural part of the stock market cycle. Since its March 2020 low, the S&P 500 more than doubled, thanks to stimulus spending by the Federal government in response to the COVID-19 pandemic. But with inflation running high, coupled with global supply-chain problems, the latest bull run seems to have come to an end.
Today's market volatility means several high-quality companies that were richly valued at the end of 2021 are trading at more reasonable levels. In particular, Public Storage (PSA 0.50%) and Equinix (EQIX 0.42%) have seen share prices decline despite their operations remaining strong among their respective real estate niches. Here's a closer look at why these two real estate investment trusts (REITs) are smart buys during the 2022 market correction.
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Self-storage shines in economic volatility
A number of industries show resilience during challenging economic times, but very few can be labeled as truly recession-proof. Self-storage is one of them. Self-storage demand thrives during periods of distress. Relocation, downsizing, death, divorce, among other important life changes, often drive people to reassess their belongings, storing what doesn't serve them at the time. All of which usually increase during a recession or economic volatility. Self-storage demand grew after the Great Recession and came roaring back after a few years of lulled growth in 2020 with the start of the pandemic.
Public Storage is the largest publicly traded self-storage REIT today, having ownership or interest in roughly 2,700 self-storage facilities across the USA. Public Storage has been rapidly expanding since 2019, spending a record $7.1 billion over the past two years. The company's most recent acquisition of All Storage, at the end of the fourth quarter of 2021, added 56 new facilities to its portfolio for a total investment of $1.5 billion. In 2021, funds from operations (FFO), an important metric to show growth in earnings, increased 30% from Q3 2021 year over year (YOY) while net operating income (NOI) grew 20.8% YOY. Plus, the company is in a great financial position with a low debt ratio of 3.4 times its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization). Considering it's trading 8.7% lower than it was at the start of 2022, it's at a slight discount for its value in the marketplace.
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Data demand should remain strong
Our society grows more dependent on technology each year. Mobile apps, social media, streaming services, video streaming, cloud-based business solutions, and countless other technologies have become a part of our everyday lives. In addition, telecommunications and data demand skyrocketed after the pandemic as people spent more time at home and transitioned to remote work. This means data center REITs like Equinix did very well and will likely continue on the trend in 2022.
The company owns, operates, and leases roughly 237 data storage facilities in 27 countries across five continents, and has seen revenues grow for 75 consecutive quarters. The company has over 10,000 customers worldwide working with 1,800 networks and 3,000 cloud-based and IT companies, meaning the market it serves and its diversified tenant base should be substantiated despite economic volatility.
Data facilities have a high barrier for entry and take an extensive amount of space, capital, and time to develop for delivery to the marketplace. While development in this sector is ramping up aggressively, existing operators are the ones who are benefiting from the continued growth in demand. Equinix is currently trading around 15% less than it was at the start of 2022, meaning it's on a notable discount for its value in the marketplace.
Take the Foolish approach
The Fool's philosophy to investing is to buy and hold for the long term. Bear markets and market corrections aren't to be feared but rather viewed as opportunities to double down or stock up on worthwhile stocks like these REITs. Riding out the ups and downs takes a lot of self-control but comes with big rewards. Remember that there have been many corrections before this and that the market rebounds eventually. It's important for investors to focus on identifying value buys in strong companies and sectors of the market. By doing so, you'll likely find yourself in a far better position several years from now for it.
