There are plenty of reasons to feel jittery about the markets in 2020.
Falling interest rates are making it more challenging to live on a fixed income. Ongoing trade tensions have capped economic growth expectations.
And the current political climate has divided the nation to levels that predate the Dow Jones.
With the late-cycle economy seeing cracks and investors worried about a market panic, more and more people are shifting their portfolios from stocks and government bonds to real estate and income-generating alternative assets.
But let's be honest about today's real estate markets. There are real concerns about the state of the real estate markets in leading cities around the country like New York, Chicago, and San Francisco.
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And it's all thanks to the taxes you pay.
Today, I want to talk about one city that can withstand a recession even in the face of economic woes. Even at the height of the 2008 financial crisis, this town effectively had a recession-proof moat around it...
The REIT I will discuss today focuses exclusively on this region, where home and commercial real estate are expected to climb in the years ahead - no matter who wins the 2020 election.
Let's get started...
The Nation's Capital Looks Recession-Proof
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]Washington Real Estate Investment Trust (NYSE: WRE) is a brilliant company.
The company picked a name that tells investors exactly what it does without any confusion.
"WashREIT" is a real estate firm that invests exclusively in property in the Washington D.C. market. Its portfolio consists of 61 properties across the region.
These 61 locations consist of 17 office properties, 25 retail centers, and 29 multifamily properties. This portfolio comprises more than four million square feet of commercial space.
In recent years, WRE has generated many headlines due to its shift from an office-centric strategy to multifamily units.
The firm's office portfolio includes a series of marquee commercial properties like the Watergate 600 building, the Army-Navy Building, 1901 Pennsylvania Avenue, and the Fairgate at Ballston.
And it has a roster of prestigious tenants.
WashREIT just renewed a lease with the World Bank. The renewal includes an initial term of five years with two five-year renewal options.
A clause also exists that would allow the World Bank to buy its property, a transaction that would only boost the REIT's balance sheet.
Do you think that the World Bank is going anywhere soon in the next 15 years? Of course not.
Second, the renewal slashed the company's 2020 commercial lease expirations by almost 50%. The firm is in a stable position to ensure that tenants remain in place, or it will locate new ones to secure the properties' cash flow.
Washington D.C. Is a Safe Property Market
One of the key reasons why WashREIT is a solid company is that it operates in a city that has a high level of economic development.
Some people argue that Washington is subject to the whims of the markets. But I always point to the Gallup Economic Confidence Index when discussing just how robust the nation's capital is compared to the rest of the country.
In 2011, as the malaise of economic recovery existed, not one of the 50 states had a positive reading on economic confidence. North Dakota - at the beginning of an oil shale boom - ranked highest among states at -13.
The District of Columbia - thanks to the faucet of government spending - had a +11 reading. That's just how much of a disconnect exists between the citizens of the D.C. area and ordinary Americans.
By 2016, D.C. had a +30 rating. That comes as the average state had a net rating of -11, according to Gallup.
The reason is simple: The U.S. government's expected total revenue in taxes is $3.643 trillion. It should be no surprise that a lot of money goes to Washington and stays in the region, and a lot of that capital ends up supporting real estate prices and the associated cash flows.
The No. 1 Reason to Buy WashREIT
I'm excited to invest in WRE now because the numbers don't lie.
First, WashREIT trades at a price-to-sales figure of 7.88 times. That figure is much lower than the industry average of 9.97 times sales.
The stock trades at 1.85 times book value, a figure far lower than the industry average of 4.99 times book.
WashREIT also pays a 3.9% dividend, which is nearly double the average S&P 500 company. As more institutional investors flee to safety, they'll be looking to secure a stable dividend as interest rates continue sliding.
But the most important number is the Money Morning Stock VQScore™.
The VQScore tracks roughly 1,500 of the most profitable stocks and REITs on the market daily.
Our proprietary algorithm conducts a detailed analysis of every public company that is growing profits the quickest and assigns each stock score that ranges from 1 to 4.9. A higher score is better and means that a stock is more likely to produce breakout gains in the coming months.
Any stocks with a VQScore of 4 or higher are considered to be in the "Strong Buy Zone."
And that's where WashREIT lands with a 4.9 VQScore.
For these reasons, my price is $42 for the company. That represents potential upside of 35%, a figure poised to outperform the market in 2020.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.