- The market continues with a deep sell-off that accelerated on Friday.
- Momentum stocks are getting crushed while high yield value names with reasonable valuations are holding up well.
- This "Great Rotation" is likely to last a while. Embracing boring low beta plays with high yields should continue to outperform in this market.
"A true friend stabs you in the front" - Oscar Wilde
Investors continue to learn that owning high-flying momentum stocks are a two way street; as these stocks continue to get cratered to start the new trading week.
Given how high the valuations are for most of these momentum names even after this sell-off this "Great Rotation" from momentum to value could continue for quite some. Something I profiled in some of the momentum stocks getting crushed in the technology sector this morning.
I detailed some of the carnage and still high valuations in other names and sectors on Sunday. This is the second part of that article where we will profile an attractive high yielding real estate investment trust (REIT). This space has held up very well throughout this pull back.
This is the same advice I was giving early in the year (I, II) before this pull back commenced. Not much in my thinking has changed after all. The economy continues to be stuck in the weakest post war recovery in history measured by economic and job growth. GDP continue to muddle along with around 2% annual growth. Since the political players remain the same as they have been for some time, it is very doubtful we get the pro-growth economic policies from this same group needed to actually boost economic and job growth.
The market is also starting to lose the support of its biggest benefactor of the past half-decade; The Federal Reserve. QE3 is winding down slowly. Given the market suffered an over 15% decline right after QE1 ended before the Fed came to the rescue with QE2. When that program ended, the market again tanked by over 10% before QE3 came in like the cavalry.
With valuations in the market higher than they were then and with S&P 500 margins at record highs, discounting another big decline when QE3 is ending seems foolhardy. For right now, discretion is the better part of valor. Unexciting high yield, low beta plays with reasonable valuations is where the strength of the market is right now. Boring is back and beautiful while other sectors of the market get pounded. Embrace it and prosper.
With that, here is an example of the type of REIT that is in my portfolio and that is showing resilience during the market's recent hiccup. Tomorrow we will look at a couple of high yielding energy partnerships that also are performing well.
Independence Realty Trust (NYSEMKT:IRT) is a real estate investment trust that seeks to own well-located apartment properties in geographic submarkets that it believes support strong occupancy and the potential for growth in rental rates.
This REIT yields a bit over eight percent annually and pays its dividends monthly. The company hiked its payout 12.5% earlier in the year. The entity did not come public until August of last year. Since it does not have one year of dividend payouts as a public company; the REIT is not showing up on a lot of filters for investors searching for yield like Yahoo! Finance.
Thanks primarily to acquisitions, revenues will more than double this year and analysts expect 40% revenue growth in FY2015. The company slightly beat on the top and the bottom line when it last reported results in late February.
The REIT was initiated at Deutsche Bank in March and the bank has a $10 price target on IRT. The shares sell at a very reasonable 11x trailing FFO (Funds from Operations) given yield and growth. This REIT has been a solid performer in 2014 and should still continue to deliver satisfactory results. Not the most exciting place to put money, but a safe one.