This has been a year of the have and have-nots for sure. The S&P 500 is up about 12% year to date. However, just five stocks made up 22% of that gain, while the other 495 made up a paltry 5%. Some stay-at-home companies have rocketed to incredible highs while mega-cap energy companies have been hammered and removed from the Dow Jones industrial average. One thing is for sure. The potential for 2021 is huge, and underperforming asset classes could benefit in a big way.
In a new research report, Raymond James takes a long look at the mortgage real estate investment trusts (REITs), an arena that has been battered this year. One reason we took the deep-dive is that they all pay superior income, and if distributions were going to be cut in most cases they would have been by now.
We screened the Raymond James mortgage REIT coverage universe and found five stocks rated at Strong Buy or Outperform. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Ares Commercial Real Estate
Raymond James rates this top stock a Strong Buy, and investors can acquire shares before the next payment date. Ares Commercial Real Estate Corp. (NYSE: ACRE) is a specialty finance company that originates and invests in commercial real estate (CRE) loans and related investments in the United States. It provides a range of financing solutions for the owners, operators and sponsors of CRE properties.
The company originates senior mortgage loans, subordinate debt products, real estate preferred equity investments, mezzanine loans and other CRE investments, including commercial mortgage-backed securities (CMBS).
In late October, the company reported generally accepted accounting principles (GAAP) net income of $14.9 million, or $0.44 per diluted common share, and core earnings of $10.5 million, or $0.31 per diluted common share, for the third quarter of 2020.
Investors receive a massive 11.86% distribution. Raymond James has an $11 price target, and the Wall Street consensus target is $10.40. The last trade on Thursday was reported at $11.13.
Arbor Realty Trust
The analysts have set an Outperform rating on this solid company. Arbor Realty Trust Inc. (NYSE: ABR) invests in a diversified portfolio of structured finance assets in the multifamily, single-family rental and commercial real estate markets.
The company operates in two segments: Structured Business and Agency Business. It primarily invests in real estate-related bridge and mezzanine loans, including junior participating interests in first mortgages, and preferred and direct equity, as well as real estate-related notes and various mortgage-related securities.
Arbor Realty offers bridge financing products to borrowers who seek short-term capital to be used in an acquisition of property; financing by making preferred equity investments in entities that directly or indirectly own real property; mezzanine financing in the form of loans that are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction; and junior participation financing in the form of a junior participating interest in the senior debt.
In addition, it underwrites, originates, sells and services multifamily mortgage loans through conduit/CMBS programs.
Shareholders receive a 9.23% distribution. The Raymond James price target is $14, while the consensus target is $12.88, and the most recent close was at $13.32.