Is Starwood Property Trust, Inc. (STWD) the Most Undervalued REIT Stock to Buy Now?
Zarah Hamid
Tue, Oct 8, 2024, 7:11 AM PDT5 min read
In this article:
We recently compiled a list of the 8 Most Undervalued REIT Stocks To Buy Now.In this article, we are going to take a look at where Starwood Property Trust, Inc. (NYSE:STWD) stands against the other undervalued REIT stocks.
Historically, REITs are a major beneficiary of rate cuts. They tend to outperform markets if cuts are followed by a recession while they perform in line with the S&P in the case of no recession. Laurel Durkay, Morgan Stanley Investment Management head of global listed real assets, previously mentioned to CNBC that the REITs that are going to benefit the most from a rate cut would be net lease companies that would experience an improved acquisition spread and a better cash flow growth as a direct result of the rate cut.
Furthermore, REITs are more resilient as they continue to capitalize on the trends that persist regardless of the volatility in conventional real estate. For instance, data center REITs benefit from AI trends, health care REITs benefit from an aging demographic, and housing REITs benefit from the housing affordability issues persistent in the United States.
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In recent news, Fed Chair Jerome Powell pointed towards further, smaller rate cuts saying that the Fed is not on any preset course. Two more rate cuts are to be witnessed this year in case the economy performs as expected. However, these cuts will be smaller and not as aggressive as the first half percentage point rate cut. The rate cut is taking center stage at the REIT conference in NYC, as reported by CNBC.
This rate cut is positive news for the REIT sector as seconded by Conor Flynn, CEO of Kimco Realty. In his opinion, the potential rate cut would change investor appetite in real estate investment trusts. He believes in a bright outlook for the sector and that the cut would benefit real estate in general as well as his business.
Our Methodology:
In order to compile our list, we first used stock screeners to identify REIT stocks that are trading with a forward P/E under 20, as of October 7. We listed stocks from all sub-segments of the REIT industry. From those, we picked the stocks which have the highest number of hedge fund holders. The 8 most undervalued REIT stocks to buy now have been ranked in ascending order of the number of hedge fund holders, as of Q2 2024.
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A sky high view of the corporate headquarters indicating the large scale of the company.
Starwood Property Trust, Inc. (NYSE: STWD)Number of Hedge Fund Holders: 25
Forward P/E: 9.84
Starwood Property Trust, Inc. (NYSE:STWD) is an affiliate of the global private investment firm Starwood Capital Group. The firm was established when Starwood Capital witnessed a need for alternative commercial mortgage financings since traditional commercial lenders left amidst the financial crisis. Starwood Property Trust has expanded since then and currently qualifies as the largest commercial mortgage REIT in the United States. The firm has been organized into complementary business segments including real estate lending, real estate investing and servicing, property, and infrastructure lending.
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Starwood Property Trust, Inc. (NYSE:STWD) has a distinct position in the global real estate finance market as one of the world’s leading diversified real estate finance companies. The REIT has navigated multiple real estate cycles and has deployed more than $98 billion of capital since its inception, as of June 30. With the average size of its loans being approximately $100 million since inception, the scale of the firm is clear. Since Starwood Capital Group is one of the largest institutional real estate investors globally, Starwood Property Trust takes advantage of its global reach.
Since the firm has been diversified into investment cylinders other than commercial lending, it has outperformed in a relatively challenging global property market. However, the management believes that the hard phase is behind them, with an easing US and Europe market to be seen in the future. The firm’s access to capital and liquidity has further allowed it to invest across its businesses consistently.
Starwood Property Trust, Inc. (NYSE:STWD) is in an attractive spot with more than $4 per share of embedded gains in its owned property portfolio as well as $1.2 billion of liquidity. Since the firm’s founding 15 years back, it has also delivered a consistent dividend and an over 10% annualized return.
Overall STWD ranks 5th on our list of the most undervalued REIT stocks to buy. While we acknowledge the potential of STWD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than STWD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
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