Real estate stocks have proven a good investment during the stock market recovery, especially those that have offered yield-hungry investors a decent payout. But many stocks in the sector are today trading near their highs, which has pushed yields down and created an environment where investors must be more selective.
In this screen we have collected data that can be used to assess the strength of large players in the real estate industry, specifically real estate investment trusts (REITs) and real estate management and development companies. It lists 26 stocks traded in the United States or Canada with revenues of $50-million (U.S.) or more that offer some level of dividend. To filter down the initial list of stocks, we set a number of criteria.
The companies did not have to be profitable to make this list, but we wanted to select companies that were sharing at least some of their wealth with shareholders, and set a minimum dividend yield of 0.5 per cent.
The screen's data come from StarMine, a Thomson Reuters service that ranks analysts and gathers earnings estimate data to which it applies proprietary research to detect momentum and other factors.
The first such measurement is called StarMine SmartEstimate, which is a proprietary blend of analysts' estimates that aims to more accurately forecast upcoming results than the consensus estimate. It gives a weighting to each analyst's estimate according to his or her past accuracy. SmartEstimate also gives greater emphasis to the timeliest forecasts and less to those that have not been updated for a lengthy period.
Our screen lists the degree of change, up or down, in the SmartEstimate for each company's EPS this year, measured as a percentage of the original forecast. This column gives an idea of which way momentum is going for the stock. We have listed only the firms that showed a 30-day change of at least 1 per cent.
The percentage difference between the SmartEstimate and the consensus estimate of the Street, called the mean, produces another StarMine metric called the Predicted Surprise. Stocks with positive surprises tend to have above-average price performance. Stocks with negative surprises tend to underperform the market, according to StarMine.
The third StarMine measurement applied to this screen is the Analyst Revisions Model, or ARM, which is a measure of the change in analyst sentiment ranging between 1 and 100, with 100 representing the highest rank.
The ARM looks at changes in the consensus over multiple time frames and not just for earnings, but also EBITDA and revenue revisions. It also takes into account the Predicted Surprise percentage shift on these various measures. When this score is near the top (100 - the highest ranking) or bottom (1 - the lowest ranking) of its range, it is highly predictive of future earnings revisions up or down and helps investors anticipate these events, StarMine says.
To hone in on the stocks that StarMine considers likely to show positive surprises, we set the minimum ARM score at 50 and ranked the list in descending order of ARM scores.
Morguard Corp. , a real estate and property management company, tops the list with an ARM score of 93. The Mississauga, Ont.-based firm has been particularly bullish on Alberta locations. Toronto's Brookfield Asset Management Inc. , a global asset manager focused on property, power and infrastructure assets, is a close second. Shares of both companies trade near their 52-week highs.