Performance in the real estate sector generally tracks the economic cycle. During periods of high growth and inflation, real estate investments usually post strong returns. However, during an economic bust, these investments tend to underperform. Currently, HMG/Courtland Properties and Piedmont Office Realty Trust are real estate companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. There’s a few ways you can measure the value of a cyclical company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly estimate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.
HMG/Courtland Properties, Inc. (AMEX:HMG)
HMG/Courtland Properties, Inc. and subsidiaries (“HMG”, or the “Company”), is a Delaware corporation organized in 1972. Established in 1971, and now run by Maurice Wiener, the company employs 103 people and with the stock’s market cap sitting at USD $14.01M, it comes under the small-cap group.
HMG’s stock is currently trading at -78% under its actual value of $63.72, at a price of US$13.82, based on its expected future cash flows. signalling an opportunity to buy the stock at a low price. Also, HMG’s PE ratio is trading at 2.88x relative to its REITs peer level of, 19.54x suggesting that relative to its comparable set of companies, you can purchase HMG’s stock for a lower price right now. HMG is also robust in terms of financial health, with current assets covering liabilities in the near term and over the long run. It’s debt-to-equity ratio of 5.86% has been dropping for the past few years demonstrating HMG’s capacity to reduce its debt obligations year on year. More detail on HMG/Courtland Properties here.
Piedmont Office Realty Trust, Inc. (NYSE:PDM)
Piedmont Office Realty Trust, Inc. (NYSE: PDM) is an owner, manager, developer, and operator of high-quality, Class A office properties in select sub-markets located primarily within eight major U.S. Formed in 1997, and headed by CEO Donald Miller, the company currently employs 136 people and with the company’s market capitalisation at USD $2.30B, we can put it in the mid-cap category.
PDM’s stock is currently trading at -26% under its real value of $24.19, at a price of US$17.93, according to my discounted cash flow model. signalling an opportunity to buy the stock at a low price. Moreover, PDM’s PE ratio is trading at 14.51x while its REITs peer level trades at, 19.54x implying that relative to its competitors, you can buy PDM’s shares at a cheaper price. PDM is also a financially robust company, as near-term assets sufficiently cover liabilities in the near future as well as in the long run. Dig deeper into Piedmont Office Realty Trust here.
CoreCivic, Inc. (NYSE:CXW)
The Company is a diversified government solutions company with the scale and experience needed to solve tough government challenges in flexible cost-effective ways. Established in 1983, and currently run by Damon Hininger, the company size now stands at 12,875 people and with the company’s market capitalisation at USD $2.45B, we can put it in the mid-cap stocks category.
CXW’s shares are currently trading at -42% below its actual value of $35.48, at a price tag of US$20.65, based on my discounted cash flow model. The difference between value and price signals a potential opportunity to buy CXW shares at a discount. In addition to this, CXW’s PE ratio is currently around 14.73x while its REITs peer level trades at, 19.54x implying that relative to its peers, CXW’s stock can be bought at a cheaper price. CXW is also in good financial health, as short-term assets amply cover upcoming and long-term liabilities. Continue research on CoreCivic here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.