Friday, November 27, 2009

2010 - Distress in real estate continues. Will it create an investment opportunity in stocks or REIT's?

Peter Lynch, possibly the greatest fund trader of all-time with his Fidelity Magellan fund, states early in his book "One Up on Wall Street" that one needs to pass a "mirror test" first before you start to study the financial section to look at stocks. Peter said "before you buy a share of anything there are three personal issues that ought to be addressed." Well it is issue number one that I want to discuss, 1. Do you own a house? Well in 1989, when Peter wrote his book, it was a great idea and over the long term it has been a great idea. However, recently with the bank credit crunch, foreclosures due to too much leveraging of financing, and some over supply conditions, the value of real estate has gone down in the short term. Add to that pressures in the Commercial real estate market continuing in 2010 and you get some very distressed property values for those that have to sell. At the same time an opportunity is created for some of the real estate investment trust, (REIT'S), with new infusions of cash from high net worth liquid investors to make some once in a lifetime buys.
I should note at this point that banks should exhaust every option to help a homeowner stay in their house and not foreclose on them. It is devastating and could happen to anyone given a bad turn of financial circumstances, such as loosing your employment.
Anyway , some REIT's that you may want to look at to make some money are: CGM Trust: Realty Fund, (Symbol CGMRX)$20.86 NAV,which gives you a blend of real estate investments. If you like the Washington DC play on real estate you can go First Potomac Realty Trust , (Symbol FPO) $11.85 NAV or Liberty Property Trust (Symbol LRY) $31.25. If you are looking for a value play here with a good dividend my broker Vince likes Duke Realty Corp.,(Symbol DRE)as a longer term pick. If you are looking for something to invest in on the mortgage side you may like Annaly Capital Management Inc. , (Symbol NLY) $18.38. I think as tempting as it looks, it is a little early in 2010 to buy the home builders, unless we have a dramatic drop in interest rates. I keep my eye on Lennar (Symbol LEN) and Beazer Homes, (symbol BZH).

Happy Holiday portfolio shopping,


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