We recently published a list of 10 Best Real Estate Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Digital Realty Trust, Inc. (NYSE:DLR) stands against other best real estate stocks to buy according to billionaires.
In 2025, CBRE Investment Management sees the potential for global listed real estate to outperform broad equities and offer a differentiated total return as compared to the private markets. As per the firm, the listed real estate remains in the early days of a new upcycle, one where long-term yields remain range-bound, earnings continue to accelerate, listed capital market access remains abundant, and valuations can aid continued returns. In 2025, the listed real estate is expected to be characterized by accelerating organic earnings based on improved supply/demand throughout various sectors and access to capital supporting potential acquisitions and upside to estimates, among others.
Listed Real Estate- What’s Ahead?
CBRE Investment Management believes that a new cycle for listed real estate kicked off in Q4 2023 with the recognition of a pause in the rate hikes. The absence of hikes is expected to be powerful for listed real estate, even though there isn’t a strong fall in target rates themselves. Notably, real estate has performed well during periods of range-bound long-term yields. Over 2001-2007, the US 10-year bonds delivered between ~4% – 5%, and listed real estate managed to generate double-digit average returns. The investment firm also added that strong access to capital of listed real estate, versus more constrained private real estate participants, can be maintained moving forward.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Improved Earnings Growth Expected in Real Estate Sector
CBRE Investment Management sees earnings accelerating into 2025 across the real estate sectors. Globally, it expects 5% earnings growth, which is around double that of 2024 levels. Broad-based strength remains visible, with private-pay senior housing continuing to capitalize on powerful demographics and data center growth accelerating with generative AI. Also, the cell towers continue to gradually recover from customer churn, and retail and net leases have been performing, thanks to supply/demand and their prevailing capital costs.
The investment firm opines that the total return opportunity for REITs remains compelling. The listed real estate provides a ~4% dividend yield, which remains competitive versus private real estate income. This dividend continues to grow and is based on the conservative payout level. Amidst moderating central bank target rates as well as range-bound long-term yields, the firm believes that listed real estate is expected to prosper.
Our Methodology
We used the Finviz stock screener and Insider Monkey’s exclusive database of billionaire stock holdings to shortlist the companies catering to the broader real estate sector. We also mentioned the hedge fund sentiment around each stock, as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up view of a technician installing a server in the data center facility, representing the reliable services provided by the company.
Digital Realty Trust, Inc. (NYSE:DLR)
Number of Billionaire Investors: 10
Number of Hedge Fund Holders: 47
Digital Realty Trust, Inc. (NYSE:DLR) brings companies and data together by delivering the full spectrum of data center, co-location, and interconnection solutions. Fitch Ratings believes that secular tailwinds, such as AI demand, cloud storage, and the migration away from on-premise data centers, support the company’s credit profile. Furthermore, demand growth, mainly for hyperscale AI-related applications, surpassed supply. Notably, the data center providers have leveraged this via pricing and new development. These demand tailwinds are some of the positive factors for Digital Realty Trust, Inc. (NYSE:DLR), says the ratings agency.
Scotiabank analyst Maher Yaghi upped the company’s stock to “Outperform” from “Sector Perform,” with an unchanged price objective of $208. Notably, the demand for computational power remains robust. Scotiabank, which opines that infrastructure demand is expected to remain strong, supporting a multi-year growth path for companies in the sector, added that Digital Realty Trust, Inc. (NYSE:DLR) significantly improved its balance sheet. Elsewhere, Michael Rollins from Citi maintained a “Buy” rating on the company’s stock with a price objective of $212.00.
The analyst sees the potential for Digital Realty Trust, Inc. (NYSE:DLR) to accelerate its core funds from operations per share (FFOPS) in the future. Furthermore, the analyst noted that the demand for Gen-AI workloads can benefit hyper-scale leasing, and the eventual pivot to greater inference demand can favourably impact the retail-centric business. Baron Funds, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Data center landlords such as Equinix and Digital Realty Trust, Inc. (NYSE:DLR) are benefiting from record low vacancy, demand outpacing supply, more constrained power availability, and rising rental rates. Several secular demand vectors, which are currently broadening, are contributing to robust fundamentals for data center space globally. They include the outsourcing of information technology infrastructure, increased cloud computing adoption, the ongoing growth in mobile data and internet traffic, and AI as a new wave of data center demand. Put simply, each year data continues to grow exponentially, and all of this data needs to be processed, transmitted, and stored – supporting increased demand for data center space. In addition, while it is still early innings, we believe AI could not only provide a source of incremental demand but also further accelerate existing secular trends by driving increased prioritization and additional investment in digital transformation among enterprises.”
Overall, DLR ranks 6th on our list of best real estate stocks to buy according to billionaires. While we acknowledge the potential of DLR as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than DLR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
