Recent market volatility has pushed the stock market into official bear territory twice this year. The market has recovered slightly, but it still appears to be on a bear market trajectory. Bear markets, as uncomfortable as they may be, aren't a time to fret or panic sell. It is a time to buy and hold top stocks.
Two top stocks in the real estate industry today are Prologis (PLD -1.69%) and American Tower (AMT -0.59%). While both stocks are down this year, here's why investors should hold onto these stocks through the bear market and well after the next market recovery.
Prologis
Real estate investment trust (REIT) Prologis is the largest industrial operator in the world and one of the largest REITs by market capitalization. The company, which has heavy ties to the rapidly expanding e-commerce industry, owns and leases 1 billion square feet of warehouses, industrial bays, logistics centers, and last-mile distribution centers across four continents.
Prologis has some major acquisitions in the works, including the purchase of Duke Realty, which will add to its core funds from operations (FFO) almost immediately. But that's not the only thing going for it. Within the next five years, 56% of the company's leases will expire, giving the REIT a tremendous opportunity to raise its net operating income (NOI). Even if the robust rent growth the company is seeing today slows dramatically, it still equates to around $2 billion in rental revenue upside.
Its share price has fallen close to 23% this year due to general market volatility but also the growing concern over the impact of a recession on e-commerce spending. However, its recent performance shows little cause for concern. Its occupancy as of August 2022 was 97.7% while its net effective rent growth was 52.1%. Plus, the REIT's key metrics including free cash flow, FFO, and net operating income have grown 10%, 9%, and 8%, respectively.
With $5.2 billion in cash and cash equivalents, the company is more than fit to withstand a bear market. Not to mention, its long-term prospects for growth within the industrial industry could catapult the stock when the next bull market transpires.
American Tower
American Tower is a communications infrastructure REIT that owns, develops, and leases cellphone towers, antenna systems, and data centers across the globe. The company is the largest REIT by market capitalization and an absolute giant in the communications industry, leasing over 222,000 communication sites in 25 countries. Its tenants include major cellphone providers like AT&T, Verizon, and T-Mobile along with several international cellphone providers.
Its core communications business has performed well for the company over the past 24 years. Since its IPO in 1998, the company has provided a 12.5% total return, outperforming the S&P 500. But American Tower saw an opportunity to further diversify its holdings and expand its revenues in 2021 by acquiring data center REIT CoreSite. Its 27 data center facilities account for roughly 7% of its annual revenues.
Canada and U.S. Bookings, which is leasing activity between tenants and its communications sites, have taken a hit after the Sprint and T-Mobile merger. Which is one of the reasons the stock is down 9% at the time of this writing. However, there's hope this will improve now that American Tower has entered into a long-term partnership with Verizon for the continued roll-out of 5G technology. Not to mention, the company still has massive market opportunities as 5G is adopted internationally and has the opportunity to grow its assets thanks to its strong balance sheet.
Communications activity won't slow in a bear market. People will continue to use their smartphones and rely on mobile data connections like they would at any other time. Communication assets are an essential part of our world, meaning its leasing activity shouldn't fluctuate greatly over the long term. Plus its dividend yield of 2% makes American Tower a top stock to hold through a bear market and beyond.
