To invest confidently, an investor should feel comfortable with a company’s ability to maintain its earnings, debt obligations, and dividend payments, and ideally, continue growing. In an uncertain economic environment, that can prove challenging as impacts from weakened demand and spending aren’t fully known.
It may not seem like there are loads of stocks investors can confidently buy right now. After all, the S&P 500 is down 20% since last year and economic uncertainty carries forward into the new year.
Yet several high-quality stocks are performing admirably despite their beaten-down share prices while boasting healthy financial positions, continued growth opportunities, and reliable dividend yields.
Three stocks that look particularly strong as the bear market continues are Prologis (PLD 3.37%), Realty Income (O 1.09%), and Alexandria Real Estate Equities (ARE 3.18%). Here’s a closer look at each company and why Motley Fool contributors feel you can invest in them confidently.
Demand isn’t waning for this industrial leader
Liz Brumer-Smith (Prologis): Prologis is the world’s largest real estate investment trust (REIT) by market capitalization and the largest industrial operator in the world. Despite its massive size and excellent credit rating, the stock is suffering from investor pessimism in the marketplace.
The REIT, which owns and leases roughly 1 billion square feet of industrial space in 19 countries, is down 30% since the beginning of last year. This is partly due to the general bear market, but mostly due to recent statements about slowing sales and the need for less warehouse space from some of its largest tenants, FedEx and Amazon, in early 2022.
Despite those statements, Prologis is performing incredibly well right now. As of the third quarter of 2022, the REIT’s funds from operations (FFO) and net earnings per share had grown by 66% and 40% year over year, respectively. The REIT is seeing unprecedented growth in its lease rates thanks to continued strain on the undersupplied industrial market with effective rents 58% higher than last year. And its occupancy is over 97%. It also just completed the acquisition of formerly publicly traded industrial REIT Duke Realty, which will give it a boost in earnings in the first quarter of 2023.
The company did reduce its outlook for the remainder of 2022 thanks to slightly weakening demand. But even if rents don’t continue growing, the company would still be able to achieve healthy FFO and net earnings growth simply by renting expiring leases at today’s much higher rates. Its ample cash position, A-credit rating, and low debt ratios also mean it’s more than capable of riding out any turbulence the market may deliver this year or beyond.
Given its attractive 2.8% dividend yield and today’s extremely favorable pricing, it’s easy to see why this is a stock that investors can be confident about right now.
Realty Income has been reliably outperforming for decades
Marc Rapport (Realty Income): Realty Income is a REIT that can be included among “widow and orphan” investments — the kind that you can, for the most part, set and forget as a reliable source of dividend income with a good chance of capital appreciation over time.
The San Diego-based REIT was founded in 1969 by a couple who bought a Taco Bell directly from that storied company’s founder and since then has built an enviable record that has made it one of the most trusted, widely held equities in the income investment market.
In those 53 years, Realty Income paid 630 consecutive monthly dividends and, since going public in 1994, it increased that payout 118 times while providing a total return of 5,100%, about four times that of the S&P 500 over that same period.
This retail REIT makes its money from a tenant list of more than 1,100 clients anchored by major retailers and located in all 50 states with additional locations in Puerto Rico, Spain, and the United Kingdom. That portfolio also continues to steadily grow, including a Dec. 30 announcement that Realty Income would buy up to 185 single-tenant properties for $894 million from CIM Real Estate Finance Trust, a non-listed REIT.
If your New Year’s resolutions include taking a stake in a great stock to confidently buy and hold and add to as time goes on, you could do far worse than this venerable outperformer.
Alexandria Real Estate Equities’ unique offerings drive its success
Kristi Waterworth (Alexandria Real Estate Equities): After 2022, it makes sense that investors are looking for stocks that can weather an economic storm. Lots of REITs fit this bill, but among the stable cornerstones of my portfolio is a REIT that’s all about supporting the biological sciences and medical research. After all, the country is still in a pandemic and its aging population isn’t getting any younger.
Alexandria Real Estate Equities has everything it needs to remain a hot commodity. Not only does it have a solid asset-to-liability ratio, but it also made a name for itself by redesigning research campuses to encourage more collaboration across more types of companies.
These campus clusters at the center of Alexandria Real Estate Equities’ business model are where the top names in biotech, pharma, and other tech companies want to be. As of the end of Q3 2022, Alexandria had an average occupancy rate of 94.3% with a weighted average remaining lease term of over seven years. In addition, over 87% of leasing activity in Q3 2022 was generated from the company’s existing tenant roster.
And these aren’t small-potatoes tenants. The very top names in the industry are working with Alexandria Real Estate Equities to create working environments that are ideal for their specific research. Top tenants include Bristol-Myers Squibb, Moderna, Eli Lilly, Sanofi, Novartis, MIT, Harvard, the United States government, Merck, and Pfizer. The top 20 tenants contribute 31.1% of the company’s average rental revenue.
As of the end of Q3 2022, even the buildings not yet ready to be rented are being swamped with interest. Approximately 76% of the over 8 million square feet of rentable space that was under construction or in pre-lease status during that quarter was already leased or in negotiations before the end of Q3 2022. Many of these projects aren’t due to be ready for initial occupancy until 2023 or 2024.
Alexandria Real Estate Equities is the epitome of a company that has found a niche need and filled it, and it’s been doing this successfully — and paying solid dividends on that success — since 1997.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kristi Waterworth has positions in Alexandria Real Estate Equities, Amazon.com, and FedEx. Liz Brumer-Smith has positions in Prologis and Realty Income. Marc Rapport has positions in Alexandria Real Estate Equities, Amazon.com, Prologis, and Realty Income. The Motley Fool has positions in and recommends Alexandria Real Estate Equities, Amazon.com, Bristol-Myers Squibb, FedEx, Merck, Pfizer, and Prologis. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.