Real estate stocks could outperform in a stagflationary environment.
Persistently elevated inflation and the potential for sharply rising interest rates have investors concerned about 1970s-era stagflation returning in 2022. The last time stagflation was a problem, real estate was a top-performing sector in the market. Buying physical property can be difficult and expensive, but investors can easily invest in real estate by buying shares of real estate investment trusts, or REITs. There are many types of REITs, and most of them pay sizable dividends and serve as a reliable source of income. Here are eight of the best real estate stocks to buy in 2022, according to CFRA analysts.
Prologis Inc. (ticker: PLD)
Prologis is an industrial REIT that specializes in logistics real estate. Analyst Michael Elliott says there is high demand for Prologis’ logistics, and there is a high barrier to entry that limits competition in the space. Elliott estimates that Prologis’ property portfolio can support $26 billion in new development starts, and he says the property is a unique asset in a market in which prime land is scarce. Despite supply chain issues, Elliott says, warehouse rent levels are solid and Prologis should maintain pricing power as secular e-commerce growth drives warehouse demand. CFRA has a “buy” rating and $170 price target for PLD stock, which closed at $168.65 on April 8.
Equinix Inc. (EQIX)
Equinix is a specialized REIT that is the world’s largest data center operator. Analyst Keith Snyder says Equinix has limited competition and site expansion opportunities. It also has high earnings visibility thanks to its recurring revenue model. Equinix is partnered with some of the largest technology companies in the world. Snyder says Equinix’s $335 million acquisition of bare metal company Packet will help Equinix accelerate the deployment of its interconnected edge services, including its Equinix Metal service. He is projecting 8.8% revenue growth for Equinix in 2022. CFRA has a “buy” rating and $900 price target for EQIX stock, which closed at $768.78 on April 8.
Realty Income Corp. (O)
Realty Income is a retail REIT that owns, develops and manages US retail real estate with a focus on single-tenant buildings. Elliott says Realty has been more insulated from the retail sector downturn than many of its peers in recent years because of the nondiscretionary businesses of many of its tenants. In addition, he says the stock is a defensive real estate bet given its resilience to a potential slowdown in consumer spending. Realty also has the highest dividend yield on this list at 4.1%. CFRA has a “buy” rating and $75 price target for O stock, which closed at $72.16 on April 8.
Equity Residential (EQR)
Equity Residential is a residential REIT that owns and operates apartment properties throughout the US Analyst Kenneth Leon says rising lease rental rates, especially in coastal cities, could be a tail wind for Equity in coming quarters. In California and other urban markets, affordability barriers prevent many potential homebuyers from purchasing single-family homes, making apartments the most financially viable solution. In the longer term, Leon says a large, emerging population of Generation Z tenants will drive demand for Equity Residential’s multifamily business as the generation advances in the workforce. CFRA has a “buy” rating and $103 price target for EQR stock, which closed at $91.77 on April 8.
Alexandria Real Estate Equities Inc. (ARE)
Alexandria Real Estate Equities is an office REIT that specializes in commercial space for the life sciences industry. Alexandria shares took a hit in January after a secondary stock offering and are still down 8.5% year to date. Leon says the 2022 weakness is a compelling buying opportunity for long-term investors given that Alexandria has a best-in-class property portfolio. In addition, the REIT has 4.8 million square feet of property under construction. CFRA has a “buy” rating and $240 price target for ARE stock, which closed at $202.89 on April 8.
Extra Space Storage Inc. (EXR)
Extra Space Storage is a specialty REIT that owns and operates self-storage properties across the US Elliott says rental rate hikes and occupancy growth exceeded expectations in 2021, and he expects more of the same in 2022. In the near term, Elliott says, supply chain disruptions and labor shortages will hinder new warehouse construction and limit warehouse inventory, which will keep occupancy and rental rates high. In the longer term, he says, Extra Space will benefit from secular growth in e-commerce, which requires extensive last-mile delivery services. CFRA has a “buy” rating and $204 price target for EXR stock, which closed at $213.71 on April 8.
Weyerhaeuser Co. (WY)
Weyerhaeuser is a specialty REIT that grows timber and produces and sells forest products and pulp. Elliott says the booming housing market is a tail wind for Weyerhaeuser, and large housing construction and remodeling backlogs will likely keep lumber demand elevated. In addition, Elliott says timber has historically been an excellent inflation hedge for investors, which provides another source of potential upside for Weyerhaeuser shares. Weyerhaeuser achieved a record 35% revenue growth in fiscal 2021, but Elliott is projecting a 6% to 7% slowdown in 2022. CFRA has a “buy” rating and $42 price target for WY stock, which closed at $38.68 on April 8.
Mid-America Apartment Communities Inc. (MON)
Mid-America Apartment Communities is a residential REIT that owns and operates multifamily properties in large and secondary cities in the Sun Belt. Leon says Mid-America should outpace its peer group in rental growth, and asset values in the region are recovering faster from the pandemic than in other regions. A US housing shortage and record selling prices are driving apartment rental demand, and Leon says a multifamily property supply-demand imbalance is likely to continue to boost Mid-America’s cash flow in 2022. CFRA has a “buy” rating and $240 price target for MAA stock, which closed at $214.33 on April 8.
8 top real estate stocks to buy:
- Prologis Inc. (PLD)
- Equinix Inc. (EQIX)
- Realty Income Corp. (O)
- Equity Residential (EQR)
- Alexandria Real Estate Equities Inc. (ARE)
- Extra Space Storage Inc. (EXR)
- Weyerhaeuser Co. (WY)
- Mid-America Apartment Communities Inc. (MON)
Updated on Apr 11, 2022† This story was published at an earlier date and has been updated with new information.