We recently compiled a list of the 10 Best Real Estate and Realty Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Crown Castle Inc. (NYSE:CCI) stands against the other real estate and realty stocks.
US Real Estate: A Market Stuck for Too Long
Soaring mortgage rates and sky-high home prices have pushed American homebuyers out of the market for long. The situation seems demoralizing as economists at Bank of America expected the market to remain stuck until 2026 or even longer. Home prices are expected to rise by 4.5% in 2024 and then by another 5% in 2025. A critical issue hurting first-time buyers is the rate lock-in effect, the effect due to which existing homeowners remain unwilling to sell their houses since they will have to pay a higher mortgage on a new home. While this effect has restricted the supply of homes in the market, it might persist for another 6 to 8 years. In such conditions, the divide between have and have nots has amplified since current homeowners have more financial flexibility while a large proportion can simply not afford to own a house.
Long Awaited Fed Rate Cuts: What Can We Expect?
With mortgage rates currently dropping to their lowest since May 2023, the mortgage demand from both homebuyers and homeowners surged as the applications to refinance a home loan climbed. The housing industry has its eyes on the interest rate cut which had been signaled by the Fed to take place in September. Some experts believe that it could ease the affordability concerns of homebuyers in the short run. However, the cut has been expected to be rather small than replicating the historically low rates during the pandemic. On the contrary, Nick Villa, a Moody’s economist, is of the opinion that the rate cut is unlikely to solve the housing crisis although a lower mortgage rate might offer some relief. Even after the rate cut, homebuyers will have to be patient with the limited housing supply which continues to be the core and unaddressed problem in the market.
It is important to consider the Fed’s rate impact on homebuilders as well. Evercore ISI head of housing research, Stephen Kim, in an interview with CNBC, shed light on how the currently dropping rates have set homebuilders for a nice fall which will witness a rebound in demand. He pointed out the same short supply dilemma where the US has 3.8 months of supply of resale homes on the market which used to be 5 to 6 months, normally. Under these circumstances, he expects a really tight market with low pressure on home prices. While the Fed actually cutting rates might not have a huge impact on mortgage rates, it will drive the would-be homebuyers out of their places to look for a home. In conclusion, the future of the US housing market seems promising for homebuilders while homebuyers might be subject to temporary gratification since the interest rate cut won’t make that much of an impact on the mortgage rate and on a market deeply plagued with the unavailability of houses.
Our Methodology:
In order to compile a list of the 10 best real estate and realty stocks to buy according to hedge funds, we first use a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best real estate and realty stocks to buy according to hedge funds have been arranged in ascending order of the number of hedge funds that have stakes in them, as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of an array of cell towers on a distant hilltop.
Crown Castle Inc. (NYSE:CCI)
Number of Hedge Fund Holders: 43
Crown Castle Inc. (NYSE:CCI) serves as the largest provider of communications infrastructure in the United States. The company has an experience of 30 years of owning and operating network assets. It was founded in 1994 with an initial portfolio of 133 cell towers. In 1998, it went public with approximately 1,400 towers. Crown Castle now offers a nationwide footprint of towers, small cells, and fiber to help businesses and organizations connect to technologies and innovations.
The REIT has a presence in every major US market through over 40,000 cell towers, 115,000 on-air or under-contract small cell nodes, and 90,000 route miles of fiber. The company is rightly positioned to capitalize on the growing demand for data in the United States and claims to have a strong trajectory with growth opportunities for the years to follow. It is set to benefit from the long-term US wireless data demand growth. The company is meant to offer the US wireless carriers the prime real estate they require to run their networks. For tailwinds such as 5G and the Internet of Things which are to stay, the firm’s infrastructure solutions are crucial.
Some of the bitter circumstances that have impacted the company’s financial performance in 2023 include higher interest rates and Sprint canceling its cell tower leases with the firm. However, its results for the second quarter results showed solid operating and financial performance in all of its businesses and reiterated its full-year 2024 outlook. While the firm believes that there is a demand to grow small cell business revenues by double digits over the next few years, the fiber solutions business delivered growth above its 3% expectation.
Crown Castle Inc. (NYSE:CCI) seems attractive with its unique network of communications infrastructure, the performance of its underlying business, and the level of growth achieved by its businesses. As of March 31, the stock was held by 43 hedge funds thereby ranking it on our list.
Overall CCI ranks 5th on our list of the best real estate and realty stocks to buy. While we acknowledge the potential of CCI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.