We recently compiled a list of the 10 Best Real Estate and Realty Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where VICI Properties Inc. (NYSE:VICI) stands against the other real estate and realty stocks.
US Real Estate: A Market Stuck for Too Long
Soaring mortgage rates and sky-high home prices have pushed American homebuyers out of the market for long. The situation seems demoralizing as economists at Bank of America expected the market to remain stuck until 2026 or even longer. Home prices are expected to rise by 4.5% in 2024 and then by another 5% in 2025. A critical issue hurting first-time buyers is the rate lock-in effect, the effect due to which existing homeowners remain unwilling to sell their houses since they will have to pay a higher mortgage on a new home. While this effect has restricted the supply of homes in the market, it might persist for another 6 to 8 years. In such conditions, the divide between have and have nots has amplified since current homeowners have more financial flexibility while a large proportion can simply not afford to own a house.
Long Awaited Fed Rate Cuts: What Can We Expect?
With mortgage rates currently dropping to their lowest since May 2023, the mortgage demand from both homebuyers and homeowners surged as the applications to refinance a home loan climbed. The housing industry has its eyes on the interest rate cut which had been signaled by the Fed to take place in September. Some experts believe that it could ease the affordability concerns of homebuyers in the short run. However, the cut has been expected to be rather small than replicating the historically low rates during the pandemic. On the contrary, Nick Villa, a Moody’s economist, is of the opinion that the rate cut is unlikely to solve the housing crisis although a lower mortgage rate might offer some relief. Even after the rate cut, homebuyers will have to be patient with the limited housing supply which continues to be the core and unaddressed problem in the market.
It is important to consider the Fed’s rate impact on homebuilders as well. Evercore ISI head of housing research, Stephen Kim, in an interview with CNBC, shed light on how the currently dropping rates have set homebuilders for a nice fall which will witness a rebound in demand. He pointed out the same short supply dilemma where the US has 3.8 months of supply of resale homes on the market which used to be 5 to 6 months, normally. Under these circumstances, he expects a really tight market with low pressure on home prices. While the Fed actually cutting rates might not have a huge impact on mortgage rates, it will drive the would-be homebuyers out of their places to look for a home. In conclusion, the future of the US housing market seems promising for homebuilders while homebuyers might be subject to temporary gratification since the interest rate cut won’t make that much of an impact on the mortgage rate and on a market deeply plagued with the unavailability of houses.
Our Methodology:
In order to compile a list of the 10 best real estate and realty stocks to buy according to hedge funds, we first use a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best real estate and realty stocks to buy according to hedge funds have been arranged in ascending order of the number of hedge funds that have stakes in them, as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A business executive in a sharp suit shaking hands on a real estate deal.
VICI Properties Inc. (NYSE:VICI)
Number of Hedge Fund Holders: 38
VICI Properties Inc. (NYSE:VICI) is one of the largest owners of gaming, hospitality, and entertainment destinations in the United States. The company owns 93 experiential assets across a diverse portfolio which comprises 54 gaming properties, 39 other experiential properties, and four championship golf courses positioned across the US and Canada. Under triple-net lease agreements, its properties are occupied by gaming, leisure, and hospitality operators. The company’s strategy involves partnering with quality experiential place makers and operators to create the highest quality experiential real estate portfolio.
VICI Properties Inc. (NYSE:VICI) was formed in 2017 as a spin-off from Caesars Entertainment Corporation. Since the company started off with a focus on one property type which is casinos, some pessimists do not see it as diversified. This property type remains more vulnerable to the macro environment as in the case of lockdowns during the pandemic. However, what’s important to notice is that this focus has worked so far since the company has delivered increasing dividends to its shareholders since its initial public offering in 2018. The company’s net-lease business model has also been resilient during the COVID times.
With that being said, diversification is fundamental to the company’s long-term growth and this is what the management has recently been striving for. Back in December, the firm announced the acquisition of the leasehold interest of Chelsea Piers, the premier sports and entertainment complex in New York City. Another of its major investments apart from casinos was the acquisition of the real estate assets of 38 bowling entertainment centers from Bowlero, one of the largest operators of bowling centers in North America.
Considering how VICI Properties Inc. (NYSE:VICI) has so far generated value for investors, its future potential, and current efforts to diversify the core focus, it is one of the best real estate stocks to buy now. As of March 31, the company had 38 hedge fund holders.
Overall VICI ranks 7th on our list of the best real estate and realty stocks to buy. While we acknowledge the potential of VICI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VICI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
