We recently published a list of 13 Most Profitable Real Estate Stocks Now. In this article, we are going to take a look at where Public Storage (NYSE:PSA) stands against the other most profitable real estate stocks now.
Real Estate and the Aftermath of the Fed Rate Cut
As reported by Redfin, buying a home has gotten affordable for the first time since 2020 as homebuyers need to earn $115,000 to afford the typical home. While Senior Economist Elijah de la Campa thinks this could be a good time to buy a home with housing affordability improving for the first time in four years, he thinks the market won’t be cheaper in the near future. This is because the Fed’s recent rate cut and the following rate cut plans have already been priced into the mortgage rates since they were highly anticipated.
Another optimistic news for homebuyers on the sidelines was the housing payments witnessing the biggest decline in 4 years ahead of the Fed’s historic rate cut. These payments have gone down by almost $300 from April’s all-time high. The median housing payment was reported to be $2,534 during the four weeks ending September 15, down 2.7% year-over-year. With lower mortgage rates and less inventory, the housing market is still unaffordable for many but it is as good as it gets in the words of Orphe Divounguy, Zillow’s senior economist.
Regarding the aforementioned optimism for homebuyers, Robert Reffkin, Compass founder and CEO, stated that homebuyers are much more active than they were before. In his opinion, consumers react more to the change in mortgage rates rather than the absolute rate itself. He told CNBC that buyers now know not to take a relatively lower rate for granted after being through a period of elevated mortgage rates. Meanwhile, the major issue has been the lock-in effect during the preceding 2 years since 75% of the homeowners were locked into 4% mortgage rates or below, a percentage which is now approaching 50%. With declining mortgage rates, he expects the lock-in effect to drop and the housing inventory to grow.
With the declining mortgage rates, refinancings have surged. Mortgage applications hit the highest levels since July 2022 as the rates dropped. According to the Mortgage Bankers Association, applications to refinance or purchase a home in the week that ended September 20 increased 11% week-over-week while the refinancing applications climbed 20% during the period. This marks the 2nd consecutive week of double-digit gains in applications. Overall, the refinance activity is still modest with seasonally slow homebuying complemented with high home prices and a shortage of inventory.
Our Methodology:
In order to compile a list of the 13 most profitable real estate stocks, we created an initial list of 30 companies with the biggest market caps. Moving on, we screened out those companies that had a positive net income in the last twelve months and had grown their net income positively over the past 5 years. For the 5-year net income growth, we have considered the compound annual growth rates on a TTM basis. Finally, we ranked the shortlisted companies in ascending order of their hedge funds, as of Q2 2024.
At Insider Monkey we are obsessed with 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).
Aerial view of a thriving self-storage facility, showcasing the company’s expertise in acquisition and development.
Public Storage (NYSE:PSA)
Number of Hedge Fund Holders: 30
5 Year Net Income Growth: 4.10%
Public Storage (NYSE:PSA) is an owner, operator, and developer of self-storage facilities. The company opened its first self-storage facility in 1972 and has become the largest owner and operator of self-storage facilities globally. It also serves as one of the biggest landlords across the world with more than 170 million net rentable square feet of real estate.
Clearly, Public Storage (NYSE:PSA) is a self-storage industry leader. With 51 years in operation, 3,369 properties, $4.5 billion in 2023 revenues, and thousands of locations across the US and Europe, the company has a significant presence in the industry. With half of the US population residing within a Public Storage trade area, the firm has an unmatched owned scale and locations as its competitive advantage. The income growth profile also outpaces the wider real estate space.
Since the beginning of 2019, the firm’s portfolio size has expanded by 35% through $11 billion of investment and an addition of 56 million square feet. Resilient income generation, a growth-oriented balance sheet, and the potential for robust external growth make Public Storage (NYSE:PSA) an iconic brand with consumer recognition.
As of Q2, the REIT is held by 30 hedge funds. Among self-storage REITs, the firm exceeds the market cap of many known peers including Extra Space Storage, Digital Realty Trust, and Crown Castle. The stock ranks 10th among the 13 most profitable real estate stocks now.
Overall PSA ranks 10th on our list of most profitable real estate stocks now. While we acknowledge the potential of PSA 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 timeframe. If you are looking for a deeply undervalued AI stock that is more promising than PSA 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.