Three REITs That Are Extremely Oversold

Three REITs That Are Extremely Oversold

Three REITs That Are Extremely Oversold

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As stock prices fluctuate, they can sometimes reach extremes of being overpriced or underpriced relative to their fair value. If prices rise too much, the stock can become “overbought,” and the risk of profit-taking resulting in a price correction becomes greater than the potential reward of further appreciation. However, when stocks fall too much, buyers step in and the potential for a price rebound becomes greater than the risk of continuing decline.

Two useful measures of oversold stocks occur when the RSI is at or below 30 and the stochastic oscillator is at or below 20. As the share price improves, the emergence of these two indicators out of oversold territory confirms the likelihood of further gains.

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Take a look at three real estate investment trusts (REITs) that for various reasons have recently suffered substantial losses and are now in or near technically oversold territory: 

Uniti Group Inc. (NYSE:UNIT) is a specialized REIT based in Little Rock, Arkansas. It acquires and constructs mission-critical communications infrastructure in the form of fiber optics for data, copper, and coaxial broadband networks. It owns and operates 140,000 fiber route miles covering 320,000 commercial buildings with over 28,600 customer connections in 300 metro markets.

Most of its network is in the Eastern and Midwestern portions of the U.S. It’s one of the 10 largest fiber providers in the U.S. today, and fiber optic leasing generates the bulk of its total revenue. The demand for data and thus fiber has been increasing due to the advent of 5G networks and the growth of Artificial Intelligence (AI).

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On May 3, Uniti Group announced a merger with Windstream Holdings II, LLC, in a deal that gives Uniti shareholders 62% and Windstream shareholders 38% of the outstanding common equity of the combined companies. The deal made sense because Uniti is a national wholesale fiber network and Windstream, one of Uniti’s tenants, is a fiber-to-home business. When the merger is complete in the second half of 2024 (subject to shareholder and regulatory approval), Uniti will have 217,000 fiber route miles across 47 states and $4 billion in revenue.

Uniti also announced plans for a $300 million offering of 10.50% Senior Secured notes by its subsidiaries, with notes due in 2028. Proceeds may be used to fund the Windstream merger rather than using Uniti’s bridge loan facility.

Unfortunately, Wall Street was unhappy with the proposed merger and shares of Uniti began selling off. Then, on May 6, Raymond James downgraded Uniti Group from Strong Buy to Outperform and lowered the price target from $8 to $6. Shares had been trading near $5.75, but the downgrade and price cut sparked a further sell-off that took shares down to $2.57 by mid-June.

Uniti shares are now extremely oversold, with the 14-period RSI at 28.45 and the Full Stochastic at 20.61.

Peakstone Realty Trust (NYSE:PKST) is an El Segundo, California-based REIT with a diversified portfolio of single-tenant office and industrial properties. Peakstone calls itself “America’s Blue-Chip Landlord” and, as of April, had 67 properties with 16.6 million square feet of space across 22 states in high-growth markets. Ninety-six percent of its portfolio is leased with a six-year weighted average lease term (WALT). Peakstone launched its IPO on April 13, 2023.

As a new REIT with numerous office properties, Peakstone shares have been extremely volatile since the IPO. Shares initially ran from $7.60 to $38.12, then back to $12 by November 2023. After a short end-of-year rally to $21.42, shares have slowly declined throughout 2024 to a recent low of $10.77. Investors may have been disappointed that Peakstone sold four properties within the past year as that hurts future revenue and Funds from Operations (FFO).

On May 9, Peakstone declared a $0.225 per share quarterly dividend, in line with its previous dividend. The present yield on the $0.90 annualized dividend is 8.30%.

The full stochastic is now at 7.30 and the 14-period RSI is at 29.26, putting Peakstone Realty in an extremely oversold condition.

Clipper Realty Inc. (NYSE:CLPR) is a small, self-administered, and self-managed REIT based in New York City. It was formed in 2017 and owns, manages, and operates 11 multifamily residential and commercial properties.

On May 7, Clipper Realty declared its first quarter 2024 operating results. FFO of $0.14 per share beat the consensus estimate of $0.12 and was a 27.27% increase over FFO of $0.11 in Q1 2023. However, the revenue of $35.760 million came in a bit shy of the estimate of $36.008 million. Still, Clipper improved over the Q1 2023 revenue of $33.667 million.

After Clipper Realty touched $5.38 in mid-December, it’s been all downhill, with shares recently touching $3.47. Shares are now oversold with the full Stochastic at 11.31. However, the 14-period RSI, which hit a low of 20 in April, has begun to strengthen and has since risen to 36. This is called a “Bullish divergence” and often precedes a period of price appreciation.

Investors should keep in mind that an oversold condition does not guarantee a profitable purchase, it merely shows that the stock is now at a point where more buyers than sellers feel the stock is undervalued and may step in to purchase shares.

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