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 American Tower Corporation (NYSE:AMT) 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 wide angled view of a high-rise office building, the windows reflecting a nearby cityscape.
American Tower Corporation (NYSE:AMT)
Number of Hedge Fund Holders: 56
American Tower Corporation (NYSE:AMT) serves as one of the largest global real estate investment trusts. The company was founded in 1995 as an American Radio subsidiary and currently offers services and solutions to deploy and support wireless networks in 25 countries across six continents. It has a portfolio of independently owned U.S. and international tower real estate and a network of data centers in America. The company serves mobile network operators, multinational telecommunications companies, media and broadband providers, and government agencies.
American Tower Corporation has the kind of portfolio that has resulted in a footprint across diverse geographies. The ongoing exponential growth in mobile data consumption has driven performance in the United States. The company’s current financial performance is backed up by the strong underlying demand for its portfolio of communications assets. Its synergy revolves around having that global expertise and experience which enables it to navigate operational risks in new markets while simultaneously creating opportunities. Since emerging markets remain more vulnerable to external risks, the company focuses on incremental investments in developed economies while expecting to reduce their relative exposure to emerging markets over time.
The stock has bright growth prospects on the horizon after the company’s demoralizing situation where its adjusted FFO declined by 2.1% in the last quarter of 2023. However, the future seems optimistic as the REIT continued its momentum for 2024 by growing its adjusted by 13.5% to $1.3 billion during the second quarter. This was backed up by over 5% Organic Tenant Billings Growth in its US & Canada segment, positive collection trends in India, and the second-highest quarter of signed new business achieved by CoreSite.
With a dividend yield of 2.76% and a 5-year dividend growth rate of 13.71%, American Tower Corporation (NYSE:AMT) is one of the best real estate stocks to buy now. The company has also managed to grow its revenue by 11.66% and its net income by 13.25% over the last decade. Furthermore, the stock is trading at 34 times its forward earnings, a 5.75% discount to the sector. As of March 31, the stock is held by 56 hedge funds.
Overall AMT ranks 2nd on our list of the best real estate and realty stocks to buy. While we acknowledge the potential of AMT 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 AMT 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.