I still see the US economy going back to a full period of excessive real growth. Why? Let me count the ways: the surge in pent-up demand due to the pandemic, robust monetary and fiscal stimulus, business reopening, nothing but "Now Hiring" signs everywhere and a sustained boom in business, as well as consumer confidence.
Add to this the record saving rate, the rebuilding of business inventories (supply chain problems will be overcome!) And the desire of so many, now freed from mandatory urban employment, to change locations.
This does not mean that the US markets will go up every day or even every month. After a big drop as we saw in early 2020, the market will typically recover when investors start buying what were then relative bargains. However, it takes longer for corporate profits to return.
But once those earnings show excellent year-on-year comparisons, something strange happens. Investors with good profits are starting to think: this cannot take long. As a result, even with great earnings growth, they start to sell.
There are many willing buyers who have remained on the sidelines, not believing that the market could rise so quickly. They are now ready to buy. The result of so many sellers selling and so many buyers buying has historically meant a sideways market, just when revenues are growing fastest!
Even the International Monetary Fund raised its forecast for US GDP for 2021 by a quantum leap, to 6.4%. All of this bodes well for American companies and their listed stocks – in the long run. But in the short term, some are priced to perfection and regardless of the long term enjoyment, panic / concerns / corrections will occur in the short term.
The biggest threat is. We now look at the worst-case scenarios caused by the reckless expansion of the current government's spending. However, this decision to issue, to issue, does not really fall under the bailiwick of a president. He can apply for it, but only Congress can decide on the budget. I wouldn't be surprised if some of the Democratic members of Congress, who will be re-elected in 2022, were suddenly given a more fiscally responsible view.
If the IMF is right (I believe their prediction is a good one in this case, even if it is the IMF!), Then I predict that US GDP will exceed China for the first time in 16 years . China's demographic and employment problems seem to be coming home.
I believe we are in one of those typical sideways moments right now. But some sectors will do better than others. And I think residential real estate will be the most profitable sector to invest in right now.
If anyone can buy a 3 bedroom house in Austin, Denver, Tampa etc. for the same rental cost they pay for an 800 square foot condo in New York City, chances are some people are building new homes for some time. Others are moving, especially to Sun Belt cities simply because they can, and they can rent (or buy) a mansion for what they are now paying for a small city apartment.
I just bought an ETF. I found that it hits all the high marks in terms of areas covered for the likelihood of continued home construction and home purchases. It is the Hoya Capital Housing ETF (NYSE 🙂 a primarily large and mid-cap value ETF. The index they track is the Capital Housing 100 Index. The index is composed of 100 companies that collectively represent the performance of the US residential housing industry. The index is designed to track total spending on housing and housing-related services in the US
HOMZ does this by owning businesses that cover the waterfront of homes. Not only do they own the homebuilders, they also have in their portfolio durable household goods, home furnishings, general contractors and builders, management and development companies, residential real estate investment funds (REITs) and real estate services companies. Here are their top five holdings: Lowe's (NYSE :), Home Depot (NYSE :), Lennar ( NYSE :), Extra Space Storage (NYSE :), KB Home (NYSE :):
Source: Fidelity.com
Their next 10 businesses are no slouch either: DR Horton (NYSE :), MDC (NYSE :), American Homes 4 Rent (NYSE: ), Public Storage (NYSE :), Mid-America Apartment Communities (NYSE :), NVR (NYSE :), Equity Residential (NYSE :), Camden Property Trust (NYSE :), Invitation Homes (NYSE 🙂 and Sun Communities (NYSE:)…
Source: Fidelity.com
And notice how their statistics compare to the asset classes represented in their portfolio:
Source: Fidelity.com
If you prefer individual holdings, I also buy stock from a Canadian-listed company that has significant apartment exposure in the US Sun Belt area, especially major Texas cities and some in Oklahoma City and Little Rock. . The company is BSR Realty Investment Trust (OTC: BSRTF if purchased in the US). It closed at $ 12.50 yesterday.
I particularly like BSRTF's valuation statistics. I think it has – so far – been lagging behind the price hike of US apartment REITs, especially since, as US company it has chosen as its primary listing the Toronto Exchange in Canada (where it trades under the ticker HOM), they are overlooked.
Why is it overlooked? After all, Toyota is a Japanese company, but we still buy their shares. Nestlé is a Swiss company, but we buy their shares. I believe that as this one becomes more famous, it will also increase in value.
BSR is my way of enjoying growth in apartment rentals for those who are currently unable to purchase, those moving to a new city, or those who prefer to live in a community apartment for convenience .
Interestingly, although BSR is its primary listing on the Toronto Exchange, it is headquartered in the historic Union Station in downtown Little Rock, Arkansas. The management team is very familiar with the Texas-Arkansas-Oklahoma triangle.
And yet the company's stock has hardly moved in the past year. 22% in a year is excellent for an apartment REIT in normal times, but the competition has been double in these unusual times. This one is still excellent for sale.
The BSRTF (Funds From Operations) FFO is 18, yielding 4.25%. As always, it is the Quiet Ones that often have the greatest potential for surprise.
Disclosure: Unless you are a Stanford Wealth Management customer, I do not know your personal financial situation. Therefore, I am offering my opinion above for your due diligence and not as advice to buy or sell specific securities.
