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Public Storage: A Winner As Interest Rates Plummet

Mar. 10, 2020 3:55 PM ETPublic Storage (PSA)IYR7 Comments


  • Public Storage is one of the relatively few S&P 500 stocks that are solidly in the green year-to-date.
  • That makes sense; the company is set up to benefit from current market conditions.
  • I expect Public Storage's dividend yield to fall to 3% to mirror the decline in interest rates on treasury bonds.
  • That, in turn, would result in a $267 stock price, or roughly 20% upside from current levels.
  • This idea was discussed in more depth with members of my private investing community, Ian's Insider Corner. Get started today »

Public Storage (NYSE:PSA) is one of the largest REITs in the U.S., and has been a relative laggard to the sector, at least until recently. The company fell following a weak earnings report last fall, and, more generally, it has struggled due to concerns about too much capacity in the storage industry.

Shares have diverged from the market more recently, however. They fell with the February sell-off, but have firmed up to start the month of March, even as the rest of the market has tumbled:

In fact, Public Storage is actually up 5% year-to-date now. And that's not as crazy as it may seem; Public Storage is favorably positioned given the current interest rate environment. Here's why the stock has turned the corner, even as the market is in a slump.

PSA - And Other High-Quality REITs - Can Act Like Levered Bonds In The Short-Run

Over the past year, with one exception (earnings in October), Public Storage's stock has essentially traded as though it were about a slightly-levered or high beta version of the long duration government bond ETF (TLT). When bonds are going up (TLT/orange line rising) that means that interest rates are going down. When interest rates go down, usually people are willing to pay higher prices (accept lower dividends) for income investments like REITs as well.

Really, aside from the earnings dip last fall, PSA's stock was doing a great job of tracking bond prices until about a month ago:

ChartData by YCharts

Since then, however, bonds have gone on a rampage to the upside hitting new records. Meanwhile, Public Storage and other high-quality REITs have failed to keep up.

As you can see, the correlation had been high all year. Both investments rallied in tandem all summer in particular and topped at the beginning of September


Data by YCharts

This is an excerpt of an Ian's Insider Corner report published March 2nd for our service's subscribers. If you enjoyed this, consider our service to enjoy access to similar initiation reports for all the new stocks that we buy. Membership also includes an active chat room, weekly updates, and my responses to your questions.

This article was written by

Ian Bezek profile picture
Research and trade alerts from a hedge fund pro with a global outlook.

Ian worked for Kerrisdale, a New York activist hedge fund, for three years, before moving to Latin America to pursue entrepreneurial opportunities there. His Ian's Insider Corner service provides live chat, model portfolios, full access and updates to his "IMF" portfolio, along with a weekly newsletter which expands on these topics.

Analyst’s Disclosure: I am/we are long PSA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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