On July 11, the June Consumer Price Index (CPI) came below street expectations at 0.1%. Over the past six trading days, large institutions have been selling large, big-winner tech stocks such as NVIDIA Corp NVDA and Alphabet Inc Class A GOOGL and redistributing money into interest-sensitive defensive stocks such as real estate investment trusts (REITs).
This flow of new money has caused many REITs to soar in price, which has been a boon for long-suffering REIT investors. The Vanguard Real Estate Index Fund ETF VNQ, with nine REITs in its top ten holdings, has risen 5.42% since the CPI was released.
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However, nothing goes straight up and many of these REITs are now in "overbought" territory, meaning they are temporarily overvalued. This can be seen by using technical analysis indicators such as the 14-period RSI and the Full Stochastic Oscillator. These are momentum indicators that analyze overbought or oversold conditions.
A stock is considered overbought when the RSI moves over 70. The higher the number, the more overbought it is. When the Full Stochastic climbs above 80, it too signals an overbought stock.
Overbought doesn't automatically mean the stock will crash tomorrow. It simply indicates that the stock has reached a level where the risk of correction now outweighs the potential for further appreciation. When stocks become overbought, many investors profit, causing share prices to decline.
Take a look at three surging REITs whose technical numbers are now through the roof and could be ripe for pullbacks. Investors may want to wait for lower prices before making a purchase:
Four Corners Property Trust
Four Corners Property Trust Inc. FCPT is a diversified REIT based in Mill Valley, CA. Its focus is on owning net-leased restaurants, medical and dental services, automotive services, and other retail properties in the Sunbelt regions of the U.S.
Four Corners was created in November 2015 with 418 restaurants spun out from Darden Restaurants, Inc. DRI. As time has progressed, many of the Darden properties have been sold off, but Olive Garden and LongHorn Steakhouse restaurants still make up about 47% of Four Corners' total rents. In 2023, Four Corners disposed of several underperforming Red Lobster properties.
Over the past seven years, Four Corners has steadily acquired more diversified properties. Its most recent total portfolio was 1,115 long-term leased properties with 149 brands across 47 states. Almost 20% of its properties are now comprised of medical, retail, and auto service tenants. It has continued acquiring restaurants outside of Darden brands, such as Chili's, Buffalo Wild Wings, Cheddar's, KFC, Taco Bell, and Burger King.
Its latest acquisition was on July 18, when Four Corners announced the acquisition of a Buffalo Wild Wings property in Texas for $2.5 million.
As of May 2024, Four Corners had a very strong occupancy rate of 99.6% with a weighted annual lease term (WALT) of 7.6 years. Its portfolio is mostly located in suburban, fast-growing areas. Less than 6.4% of its rental income matures before 2027.
On July 8, JMP Securities analyst Mitch Germain initiated coverage on Four Corners with a Market Perform rating. No price target was announced.
Four Corners has gained 7.26% since the CPI was released. However, at its recent close at $27.05, the 14-period RSI was at 82.54 and the Full Stochastic was at 93.22.
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Realty Income Corp
Realty Income Corp O is a San Diego-based, triple-net lease REIT with over 15,450 properties worldwide. The "Monthly Dividend Company," as it's widely known, is a member of the S&P 500 and an S&P 500 Dividend Aristocrat.
Realty Income remains one of the foremost REITs today and with good reason. Its total return since January 1995 is 1,246.32%. Its consistently increasing monthly dividend helps retirees and other income investors pay regular expenses.
On June 3, Realty Income announced it had revised its 2024 guidance for Normalized FFO from $4.17-$4.29 to $4.19-$4.28 per share. AFFO guidance was also increased from $4.13-$4.21 to $4.15-$4.21.
On July 18, UBS analyst Brent Dilts maintained Realty Income at Buy and raised the price target from $61 to $68.
Realty Income has been a stalwart REIT for decades, and income investors enjoy its monthly dividend, which has increased for 107 consecutive quarters since the IPO in 1994. The forward annual dividend of $3.156 presently yields 5.47%.
The stock is up 7.75% since the CPI was released. However, at its recent close of $57.73, the 14-period RSI was recently at 78.30 and the Stochastic was 94.91.
Investors who wish to add shares might be wise to wait for a pullback in price.
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The fund provides a fixed annual return of 12%, payable quarterly, over a 2-year period starting April 2024 and ending April 2026. The note is secured by collateral with an estimated value of $71M, with an anticipated loan-to-value ratio of 14%.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Terreno Realty Corp
Terreno Realty Corp TRNO is a San Francisco-based Industrial REIT that owns and operates 290 properties of 17.4 million square feet in six major coastal U.S. markets. Those areas are Miami, Northern New Jersey/New York City, Washington D.C., Seattle, Los Angeles and San Francisco. Terrene's occupancy as of March 31 was 98.1%.
Terrene has a superior long-term growth record. Its 14-year total return is 325.09%, or 409.55% if dividends were reinvested.
Like the aforementioned REITs, Terreno has performed quite well since the release of the CPI, having gained 6.98% from July 11-18. Because of that success, the 14-period RSI reached 78.62, and the Stochastic was 82.15.
Many REITs have had similar gains lately, and a few others, such as Kimco Realty Corp KIM and Service Properties Trust SVC, now have very high RSI and Full Stochastic numbers as well. Investors should always be cautious when technical indicators reach overbought levels. An important reminder is to let the market come to you rather than chasing runaway prices.
Check Out One Of Benzinga's Top Picks for Private Market Opportunities Available Now:
Integris Secured Credit Fund IV
The fund provides a fixed annual return of 12%, payable quarterly, over a 2-year period starting April 2024 and ending April 2026. The note is secured by collateral with an estimated value of $71M, with an anticipated loan-to-value ratio of 14%.
- Minimum investment: $100,000
- Available to: Accredited investors
- View fund information
View more private market offerings on Benzinga's Alternative Investment screener.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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