Under the Radar: Would You Jump Off a Bridge If All Your Friends Did?

Dear Benzinga Edge Member,

All of us heard that when we were growing up if we tried to play the “All my friends do it” card to get out of a jam.

We also did our best not to answer Mom when she asked that one because deep down inside, we knew she would not like that answer.

The truth is we probably would.

To be completely open, I will confess that I jumped off several bridges because a friend did as a kid.

Everyone else was off local bridges on a hot summer day, so I did, too.

Neither local law enforcement nor my parents loved it, but I did it.

The truth is that humans are tribal. Our brains are hard-wired with a herd mentality.

There is safety in the middle of the herd.

Unfortunately, there is also mediocrity.

Nowhere is this more obvious and damaging than in the economic markets.

If you do the same thing everyone else is doing, you will get roughly the same returns.

People tend to buy the same stocks at the same time as everyone else.

It has always been true, and it always will be.

Everyone parrots the old saw about buying low and selling high.

No one does it.

Usually, when the time to buy low comes along, most investors are huddled in the closet with a teddy bear and a bottle of Tennessee sour mash, begging for mercy.

Everyone also claims to be different from the herd.

I will let you in on a little secret.

If all of you and all your friends claim to be contrarians, none of you are.

Here at Under the Radar, we are not interested in what everyone else is doing.

If every analyst on the street loves a stock, it is hard to see how we can gain an advantage that allows us to earn outsized returns.

If every analyst on TV thinks a certain sector is poised for glory, it’s hard to see how we make excess returns by jumping in a pile.

Now, if you tell us about a stock only a few analysts love that no one we know is talking about in an unloved sector, we get excited.

The residential real estate business is one of the most unloved businesses on Main Street, Wall Street, and everywhere. There have been lawsuits over fixed commission practices, including allegations of collusion and price fixing.

Mortgage rates are not falling along with the Fed Funds rate as everyone hoped, and there is a shortage of existing homes for sale.

For real estate brokers, these are indeed the times that try men’s souls.

That brings us to Anywhere Real Estate (HOUS).

Anywhere Real Estate (HOUS) is a leading provider of residential real estate services, operating well-known brands like Coldwell Banker, Century 21, and Sotheby’s International Realty.

At the last count, Anywhere Real Estate operates with a network of approximately 190,000 affiliated agents across its various franchise brands.

These agents are part of the company’s global network and work under the franchised or company-owned offices in the U.S. and worldwide.

Anywhere Real Estate HOUS

Source: Benzinga Pro

Very few analysts are paying attention to the stock, and those that do have it rated underweight or hold.

There are no enthusiastic buy recommendations.

This is a pretty simple story.

At some point, the residential real estate market recovers. No matter how the commission disputes are ultimately settled, Anywhere Real Estate will be a significant player in the industry.

The company has been investing heavily in technology while it waits for markets to recover.

One of Anywhere’s key investment areas has been the development of digital platforms and tools that streamline the buying and selling process. This includes tools for virtual home tours, digital transaction management, and enhanced customer relationship management (CRM) systems.

Another significant investment area is the company’s mobile app ecosystem, which allows buyers and sellers to navigate real estate transactions from their smartphones. These apps simplify searching for homes, scheduling viewings, communicating with agents, and even handling legal documentation electronically.

This technology is all designed to help agents be more productive, efficient, and profitable, no matter what commission or fee arrangements are in place.

Even in today’s stressed markets, the company is generating positive free cash flow of over $80 million. Anywhere has also been disciplined in its capital allocation, prioritizing debt reduction over aggressive expansion or new acquisitions.

Management has focused on reducing costs and using the resulting cash to reduce debt.

It is working, and no one on Wall Street is paying attention.

When real estate markets normalize and a new compensation structure is in place, Anywhere Real Estate should be a dominant brokerage firm that can generate significant cash flows and profits.

Before the pandemic, this stock was traded for more than $20 a share.

The stock could very easily trade back over $20.

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Regards,

Tim Melvin – Editor, Benzinga Research

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