Real estate sector a champion of April

04/14/2015

Real estate sector a champion of April

NEW YORK – April 7, 2015 – Staying dry is the key to surviving April rainstorms. The same could be said for investors – not getting soaked with bum stock picks is the way to survive in the market in April.

If there's one theme that's been consistently working for investors in the month of April, it's real estate. There are 15 stocks in the Standard & Poor's 500, including a slew of real estate-related companies, such as Macerich, DR Horton and Essex Property Trust, that have beaten the market each of the last five Aprils, according to a USA TODAY analysis of data from S&P Capital IQ. All these stocks have also posted average gains of 5 percent or more during the past five Aprils.

April has been somewhat of a wild card for investors, with returns that have swung from a 9 percent decline in 1970 to a 9.4 percent gain in 2009. Last April, stocks took a pause and fell 0.2 percent. Not a loss that would seriously wound a portfolio, but definitely a setback.

But if there's been a sector that appears to work in the month of April, real estate comes instantly to mind. Half of the 15 stocks that have consistently beaten the market during April are in real estate-related industries.

Take Macerich as a key example. The Santa Monica, Calif.-based real estate investment trust buys and develops mainly community shopping centers in the U.S. Shares of the stock have gained an average 7.5 percent during the past five Aprils, making it the second best-performing stock during the period, just behind utility NRG Energy. Macerich hasn't fallen in a single April in the past five years – and that doesn't even include the better-than-the-market current dividend yield of 3 percent.

Some fear this April could be different. Macerich's shares have done so well – gaining more than 40 percent over the past year – analysts aren't bullish on it anymore. Shares of Macerich are trading for about $80 after the company rejected a hostile takeover offer from rival Simon Property Group and Simon dropped the bid. Analysts think the stock is worth roughly $86 in 18 months, says S&P Capital IQ. Valuation is a big reason why Macerich is rated a "hold" on average by analysts.

The big wild card for REITs is what the Federal Reserve does with short-term interest rates. REITs have been one of the biggest winners from the Fed's determination to keep rates low, says Jack Ablin of BMO Capital Bank, not talking about any specific stock. "Despite record level valuations," REITs could continue to do well "as long as rates stay low," Ablin says.

That's not to say all real estate stocks that are April winners are played out. Analysts are still bullish on Simon Property, an Indianapolis-based REIT that focuses on malls. The stock has been a champion over the past five Aprils, gaining an average 6.7 percent during the month the past five years. Shares of Simon Property haven't run up as much as the other REITs. As a result, there's still about 8 percent upside in the stock before it hits its 18-month average price target of $212.27 from analysts.

Ablin, though, says macro forces at play in April could change what's been working for investors in years past. Housing data have been moderate, but "new-home sales are below what demographics would suggest," he says.

Meanwhile, small U.S. stocks are at or near valuations that are record levels. Bigger opportunities are in stocks overseas that are trading for up to 25 percent the S&P 500. International "economies are beginning to surprise economists to the upside," Ablin says.

Copyright © 2015, USATODAY.com, USA TODAY, Matt Krantz  

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