Recent market volatility has pushed the stock market into official bear territory twice this year. The market has recovered slightly but still appears to be in a bear market. Bear markets, uncomfortable as they are, are not an opportunity to fret or panic sell. It’s time to buy and hold top stocks.
Two top stocks in real estate are today prologue (PLD -2.19%) and American tower (GOVERNMENT OFFICE 0.34%). Although both stocks have fallen this year, investors should hold onto these stocks during the bear market and well beyond the next market rally.
Real Estate Investment Trust (REIT) Prologis is the largest industrial operator in the world and one of the largest REITs by market capitalization. Deeply connected to the fast-growing e-commerce industry, the company owns and leases 1 billion square feet of warehouses, industrial buildings, fulfillment centers and last-mile distribution centers on four continents.
Prologis has some major acquisitions in the works, including the purchase of Duke Realty, which will contribute to its core funds from operations (FFO) almost immediately. But that’s not the only thing that speaks for it. Within the next five years, 56% of the company’s leases will expire, giving the REIT a tremendous opportunity to grow its net operating income (NOI). Even if the robust rental growth the company is seeing today slows dramatically, it still equates to roughly $2 billion in rental income.
The stock price has fallen nearly 23% this year on broader market volatility but also growing concerns about the impact of a recession on e-commerce spending. However, recent developments give little cause for concern. Occupancy was 97.7% in August 2022, while effective net rental growth was 52.1%. Also, the REIT’s key metrics, including free cash flow, FFO, and net operating income, are up 10%, 9%, and 8%, respectively.
With $5.2 billion in cash and cash equivalents, the company is more than capable of withstanding a bear market. Not to mention that the long-term growth prospects in the industrials sector could catapult the stock into the next bull market.
American Tower is a communications infrastructure REIT that owns, develops and leases cell towers, antenna systems and data centers around the world. The company is the largest REIT by market cap and an absolute giant in the communications industry, leasing over 222,000 communications sites in 25 countries. Tenants include major cellphone service providers such as AT&T, Verizonand T Mobile along with several international mobile operators.
The core business of communication has developed well for the company over the past 24 years. Since its IPO in 1998, the company has posted a total return of 12.5%, outperforming the stock S&P500. But American Tower saw an opportunity to further diversify its holdings and grow its revenue in 2021 by acquiring data center REIT CoreSite. The 27 data center facilities account for about 7% of annual revenue.
Bookings in Canada and the US, which are leasing activities between tenants and their communications sites, took a hit following the Sprint-T-Mobile merger. It’s one of the reasons the stock is down 9% as of this writing. However, there is hope that this will improve after American Tower entered into a long-term partnership with Verizon for further roll-out of 5G technology. Not to mention, the company still has tremendous market opportunity as 5G rolls out internationally and has an opportunity to grow its fortunes thanks to its strong balance sheet.
Communication activity will not slow down in a bear market. People will continue to use their smartphones and rely on mobile data connections like any other time. Means of communication are an integral part of our world, which means that their leasing activity should not fluctuate greatly over the long term. Plus its 2% dividend yield makes American Tower a top stock to hold through a bear market and beyond.
Liz Brumer has held positions at American Tower, Duke Realty and Prologis. The Motley Fool has positions in and recommends American Tower and Prologis. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.