It's a perfect time to be invested in real estate. With the U.S. Federal Reserve prepared to keep interest rates lower for longer - and the central bank pumping cash constantly into the system - investors and speculators are turning toward assets like buildings, land, and other real estate.
One of the best ways to tap into real estate is through something known as a real estate investment trust (REIT).
These cash-churning assets have been among the top-performing assets during the Fed-driven recovery over the last decade. They generate returns through the uptick in the assets' appreciation and the increasing income generated through working real estate assets.
Right now, the market has mispriced one of the top REITs to buy.
This company is poised to beat analyst expectations before reporting earnings in February, and smart investors should scoop up the stock before earnings - and before it pays its next dividend.
Not only will you benefit from the distinct tax advantages offered by this REIT, but the probability that its stock price will appreciate throughout 2020 is high according to our proprietary Money Morning Stock VQScore™ system.
The Top REIT for January Is...
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The top REIT to own this month is Vornado Realty Trust (NYSE: VNO).
VQScore analyzes multiple fundamentals and ranks all publicly trades stocks from 0 to 4.9. The higher the score, the more likely the REIT is to break out in the year ahead.
And Vornado has just earned a 4.9, signaling that it is a "Strong Buy" now.
Vornado operates in one of the top real estate markets in the world: New York City.
New York makes up 8.3% of U.S. GDP and more than 2.5% of total global economic activity.
Roughly two-thirds of the company's income is tied directly to New York City.
And with interest rates low and demand high on that tiny island, prices are going higher. Much higher.
This factor is one of the reasons that I am a bit surprised by the current earnings estimates for the company's February report.
But before I dig into those numbers, let's take a look at the firm's portfolio...
Now, if you've followed me before, you know I love this REIT. Its portfolio is remarkable and best-in-class when you consider the value of Manhattan real estate.
Vornado's customers simply aren't going away.
It owns 2.6 million square feet of street retail space in the city, manages about 20 million square feet of office space, and develops some of the most prestigious private residential buildings in the town.
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Its incredible portfolio includes:
- Amazon's NYC headquarters at 7 West 34th Street.
- Bloomberg's NYC headquarters at 731 Lexington Avenue.
- Neuberger Berman NYC headquarters at 1290 Avenue of the Americas.
- More than 10 million square feet in the Penn District, NYC, including One Penn Plaza.
But it's more than just retail and commercial space.
For example, the firm's 118-unit Vornado Realty Trust tower at 220 Central Park South sold one of the most expensive homes in U.S. history when hedge fund manager Ken Griffin snapped up the penthouse. The 24,000-square-foot penthouse, with six bedrooms and 18.5 bathrooms, sold for a staggering $240 million last year.
Just this week, Noble Birch (U.S.) purchased $59 million for the 48th floor at the Billionaires' Row tower. The firm has sold 62 of the units in the 70-story building for $1.8 billion.
Given the way the wealthiest Wall Street names are scooping up properties, Vornado will benefit from an uptick in sales in the year ahead.
The February Earnings Report
Ahead of the firm's earnings report in February, analysts project the firm will report earnings per share of $0.85. This figure is below the $0.90 it reported during the same period last year.
That said, I expect the company will see shares come in at the higher end of this range, all while setting a positive forecast for the year ahead.
Shares boosted higher in December after the company announced a special dividend payment for investors, but it was available only to investors of record on Dec. 30.
Ahead of earnings, investors should consider legging into this stock. Purchase one half of your stake today and buy the other half a day after earnings, when the market has priced in its forecast.
Vornado Realty Trust offers a 3.97% dividend, which is terrific returns from the New York real estate market. That said, as property demand increases and investors continue to pour capital into real estate, I think Vornado could break out even more.
VNO stock currently trades at $66.50 per share. The 12-month outlook, however, is roughly $95 per share.
That means shares could rally roughly 42% 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.