Should You Buy the Dip in Real Estate Stocks Now?

December 09, 2024 at 07:32 AM EST

After the United States elected a new president, the thought of new policies, including tariffs and a view on immigration, spooked some investors out of the real estate sector. The reasons why stocks in the space pulled back recently can be attributed to both the potential cost increase from trade tariffs and the tightening supply of construction labor, which would further increase costs for homebuilders, especially.

Higher costs result in lower margins, lower earnings per share (EPS), and, of course, lower stock prices. With this in mind, investors can also consider the real estate market as a whole to potentially offset these negative effects, realizing that it is near the bottom of its cycle and could bring these stocks back to their former glory when an inevitable rebound comes around.

That is why stocks like D.R. Horton Inc. (NYSE: DHI), CBRE Group Inc. (NYSE: CBRE), and even American Tower Inc. (NYSE: AMT) are worth considering today. Each has a different risk and return profile, so investors have a chance to build a portfolio that can provide both the potential swings and the low volatility needed during times like these. All are backed by fundamental developments and views from Wall Street analysts today.

Why Wall Street Expects Double-Digit Upside for D.R. Horton Stock Despite Pullbacks

Usually, analysts will hold back from boosting a stock that has given them bearish price action recently since their reputation and careers often depend on the calls they make. A stock that is falling will often keep falling. Now that D.R. Horton stock trades at 80% of its 52-week high, a 20% selloff should not be ignored.

Still, analysts were willing to boost their targets for the stock, knowing that the turnaround in residential construction could be just around the corner. Specifically, those at J.P. Morgan Chase recently boosted their valuations from a previous $180 a share up to $188 a share today, calling for a net upside of 17.5% from today’s prices.

Then there were those from Barclays, who reiterated their Overweight ratings for D.R. Horton while also keeping a $192 a share valuation on the homebuilder as of October 2024, daring the stock to rally by as much as 20% from where it has pulled back into today.

But these analysts weren’t the only ones willing to express their optimistic views on D.R. Horton. Those at State Street decided to boost their holdings in the homebuilder by 0.1% as of November 2024. This may not seem like much on a percentage basis, but it brought their net investment up to $2.5 billion, or 4% ownership in the company.

CBRE Stock Offers Lower Risk with High Upside Potential Today

Investors often refer to a stock's beta to measure its risk potential. Today, CBRE stock offers a lower beta of 1.3 compared to D.R. Horton's much higher beta of 1.7. It is common knowledge that with risk comes reward, but in this case, analysts were just as willing to place attractive upside potential in this less risky stock.

For CBRE, Goldman Sachs saw fit to place a Buy rating on the stock, this time slapping a $176 valuation on the company. To prove these new ratings as of December 2024 right, the stock would have to stage a rally of 27% from where it trades today, similar to D.R. Horton, only with fewer bumps along the road.

However, D.R. Horton will likely deliver a profit first for those in a hurry since it operates in the residential sector while CBRE is leaning toward more commercial projects. That's where the risk premium comes from, timing, but if you can afford to wait a little longer, there's more upside with less volatility in CBRE.

Bears know this, which is why they've decided to cover some of their short positions, as judged by the 5.8% decline in short interest over the past month alone. This is a sign of bearish capitulation in face of the new upside being assigned to this company today.

American Tower Stock: Balancing Upside Potential with Safety for Investors

Last in line for profits but offering both upside and safety through its 0.8 beta, American Tower stock will likely benefit from a rebound in the mortgage market index, which is now at a 1996 low. As bond yields keep coming down, so are mortgage rates, and this index will have to come back to normal levels to boost the entire real estate industry.

That includes real estate investment trusts (REITs) like American Tower, which surprisingly has gotten analysts from Barclays to place an Overweight rating on the stock, this time with a $251 valuation. To get to this view, American Tower stock would have to rally by 22.1% from where it trades today.

The best part about this being a REIT? Its dividend, as the company now offers a $6.5 a share payout to investors, translates into an annualized yield of 3.1% to beat inflation while investors wait for this double-digit upside potential to be realized in the coming months.

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Should You Buy the Dip in Real Estate Stocks Now?

Why Wall Street Expects Double-Digit Upside for D.R. Horton Stock Despite Pullbacks

CBRE Stock Offers Lower Risk with High Upside Potential Today

American Tower Stock: Balancing Upside Potential with Safety for Investors

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