The new market cycle could be the best environment for ‘boring’ stocks to take off. Recently, there has been some interest in the real estate sector, especially after Warren Buffett started buying homebuilding stocks like PulteGroup Inc. (NYSE: PHM) and D.R. Horton Inc. (NYSE: DHI) over the last quarter of 2023. This raised the question of whether the industry could see more rallies ahead.
While it may be too late to buy the home builders, considering that they have already rallied significantly over the past 12 months, there are other ways to play the value chain, some of which require more work than most retail investors are willing to do. To save investors hours of research, here’s a list of three stocks to watch out for, notably after shares of Federal National Mortgage Association (OTCMKTS: FNMA) rallied by nearly 10% in a single day.
Fannie Mae’s rally is directly tied to the price action seen in shares of Zillow Group Inc. (NASDAQ: Z), but investors will learn more about why in a bit. For now, the focus lies in the road ahead, not in the rear-view mirror, and what lies ahead is stocks like Equity LifeStyle Properties Inc. (NYSE: ELS), SoFi Technologies Inc. (NASDAQ: SOFI), and even Mexican-based Cemex (NYSE: CX).
What 90% of Traders Missed About Cemex Stock
Over the past month, traders have received a lot of economic data, with GDP growth and inflation data taking the spotlight. However, the building permits report should be included, but it should be. Over the past year, building permits have been down over 7%, but not all states are equal.
According to this Zillow report, Florida is the one state that reports the highest housing shortage, which is why it also received the most building permits over the month, even if the nation is experiencing slowing permit approvals.
Other states are actually putting their homes for sale on the market, which is why Zillow stock jumped on the rising U.S. home listings report, considering that the platform will be front and center in connecting buyers and sellers. Now, mortgage financing comes after the listed house is sold, right? Hence, Fannie Mae’s rally as well.
But that’s outside the scope of the situation in Florida. There’s still a lot of work to be done regarding construction, and that is where Cemex comes into play. Mexico is one of the U.S.’s largest trading partners, and a good chunk of Florida’s cement imports comes directly from Cemex.
Knowing that the stock is an indirect way to play Florida’s construction boom, analysts on Wall Street now forecast up to 17.2% earnings per share (EPS) growth for the next 12 months. More than that, those at Morgan Stanley raised their price targets on Cemex stock up to $12 a share.
Analysts at Goldman Sachs also boosted the stock to $10 a share, driving both banks to see an 87.5% upside in Cemex stock from where it trades today.
SoFi Stock's 200% EPS Growth Shows the Stock is Next in Line
While Fannie Mae is the tried and tested government entity that typically issues mortgages, SoFi’s popularity is growing like a hiccup. The company’s latest quarterly financials show that SoFi’s net members rose by 44% over the year, bringing the net to 8.1 million today. This rapid adoption comes as new generations prepare to buy their first home, and the more accessible and straightforward financing process sure connects with more tech-savvy customers.
Due to this rapid user expansion, SoFi’s platform pushed out up to 26% annual revenue growth. Because of double-digit growth across the board for SoFi’s key performance indicators (KPIs), Wall Street analysts feel comfortable forecasting over 200% EPS growth in the next 12 months. Backed by these growth projections, those at Deutsche Bank saw it fit to boost SoFi’s stock valuation to $11 a share.
To prove these analysts right, the stock would need to rally by as much as 66.7% from its current price. For these same reasons, the Vanguard Group (SoFi’s largest shareholder) boosted its stake in the stock by 1.7%, bringing its net investment up to $604.6 million today.
Why Equity LifeStyle Properties is Outpacing Other REITs in Valuations
Shares of Equity LifeStyle Properties are now trading at a price-to-book (P/B) ratio of over 8.1x, more than double the average real estate investment trust (REIT) industry average of 2.3x today.
There must be a reason why markets are willing to pay a premium to access Equity LifeStyle properties’ book of properties. A good amount of rental income comes from the Floridian market, and here’s why those properties now command a premium value today.
It will take substantial time for building permits to be converted into sold homes. In the meantime, Florida’s housing shortage will drive would-be homebuyers to rent instead. This wave of rental income is set to hit Equity LifeStyle Properties’ doors.
This could be why analysts at Barclays see the stock valued up to $75 a share, daring it to rally by 15.2% from where it trades today. More than that, Wall Street forecasts up to 5.9% EPS growth in the REIT, outpacing inflation and GDP growth to show the superior rental income growth that could come soon.