We're heading into the latter part of 2021, and the COVID-19 pandemic has surged once again, plus many growth stocks have retreated from their highs in recent months. This has led to some attractive investment opportunities in the real estate sector. These three in particular are looking like strong buys as we head into September.
A massive long-term growth opportunity
STORE Capital (NYSE: STOR) is a real estate investment trust (REIT) that specializes in single-tenant properties, mostly occupied by service and retail tenants. (Note: If you're wondering why the name is capitalized, it stands for Single Tenant Operational Real Estate.) STORE currently owns more than 2,700 properties but could still be in the very early stages of its growth story.
Not only does STORE Capital see an addressable market of nearly $4 trillion worth of properties, the company is aggressively growing in order to take advantage of the current market conditions, especially the cheap cost of capital. For example, STORE made $341 million in acquisitions during the second quarter at a cap rate, or initial yield, of 7.8%. Meanwhile, the average interest rate on STORE's debt is about 2.8%. That's a pretty impressive spread and could lead to years of excellent growth in the company's bottom line.
This stock could be a big reopening winner
Outfront Media's (NYSE: OUT) business was hit hard by the COVID-19 pandemic. The company makes its money by leasing outdoor advertising space, specifically through billboards and transit systems.
The transit system side of the business was especially devastated. In the early days of the pandemic, Outfront's transit system revenue plunged by more than 70%, and it's not a surprise. After all, what company in its right mind would want to advertise to empty subway stations?
The early progress in the reopening has been encouraging. Outfront's billboard revenue has come back to within 5% of pre-pandemic levels. But its transit system advertising revenue still has quite a way to go -- $50 million in the second quarter versus nearly $135 million in the same quarter of 2019. As the world gradually returns to normalcy in the third quarter and beyond (remember, most urban areas had substantial COVID-19 restrictions for much of the second quarter), Outfront could be a big winner.
A major real estate disruptor on sale
Redfin (NASDAQ: RDFN) could grow into a major disruptive force in the real estate brokerage business. It currently trades for about 50% less than its 52-week high.
If you aren't familiar with the company's business, Redfin leverages technology to make the process of selling a home as efficient as possible and charges half the industry's average selling agent commission – which saves the average homeowner thousands of dollars. The company has facilitated more than 300,000 real estate transactions since it launched 15 years ago, and it's grown tremendously.
In a nutshell, the home selling process is clunky at best and full of consumer pain points. Not only that, but there are about 6 million homes sold in the U.S. every year, and the brokerage industry is highly fragmented. Redfin provides a better way to sell a home, and with less than 1.2% of the market, it could have a long way to climb. And that doesn't even take into account Redfin's mortgage, title, or iBuying businesses.
Invest for the long term
While I think all three of these look like attractive opportunities right now, it's important to emphasize that these should be approached as long-term investments. There's no way to know what their stock prices will do over the next few months, or even the next year. Only invest if you're willing to hold for several years or more.