This week, analysts at Jefferies investment banks have had a shift in strategy as they changed sector preferences amidst global equity market volatility and uncertainty.
The first change enacted by Jefferies equity strategists, Steven DeSanctis and Eric Lockenvitz was the move to an underweight stance on the Consumer Staples sector.
They highlighted how the sector has moved up the scale this year to become the most expensive group in the size segment.
In addition to valuation concerns, the analysts pointed out that the sector has had some of the worst earnings revisions to the downside with the sales revision ratio falling drastically.
The sector benefits from a stronger USD and increased volatility but in the event of an equity market rally, the sector tends to lag behind others.
On the flip side, the firm moved to an overweight stance on the listed Real Estate Investment Trust securities (REITS) sector with the stocks acting as bond proxies in the current market.
The sector has not acted as a defensive play so far in 2022 with securities down -30% year to date. The firm noted that the last time the sector performed this badly, balance sheets were in a much worse shape, which is not the case currently.
The firm highlighted the REIT sector which is valued on a PE ratio based on a trust’s FFO (funds from operations) and is currently trading at an 11% discount to the small-cap cohort.
The REIT sector dividend yield is currently above 4% and has not been at the current level since March 2020 near the beginning of the pandemic.
Jefferies sector analysts told investors that they prefer sub-sectors that have material net operating income (NOI) growth that can potentially offset rising inflation impacts.
They believe the most attractive opportunities lay in the self-storage, industrial, data centre and residential subsegments.
9 key REIT picks were selected that have strong balance sheets and growth profiles. These include:
Self Storage REIT Public Storage (US:PSA) has traded -18.6% lower to this year and has a 2.70% annual dividend yield. The stock has a consensus ‘overweight’ rating and an average target price of $365.
Industrial-focused REIT Prologis Inc (US:PLD) has lagged peers with a -35.8% stock price decline over 2022. The REIT currently has a 3% dividend yield and a bullish ‘buy’ consensus recommendation with a $138 target price
Peer industrial REIT Terreno Realty Corp (US:TRNO) has suffered the same fate with the stock trading -35.7% lower in 2022. The fund pays a 2.95% dividend yield and has a consensus ‘overweight’ recommendation and an average $66 target price across the street.
Datacenter focused REIT Equinix Inc (US:EQIX) has retreated -35.4% over 2022 and now pays a 2.3% dividend yield. The stock has a consensus ‘overweight’ rating and a $740 price target.
Digital Realty Trust (US:DLR) has been a worse performer in the data center space with the stock trading -44.7% lower in 2022. With the sharper sell-off, the dividend yield has risen to a high of 5.04%. DLR has a consensus ‘overweight’ view and a $140 target.
Digital tower and fiber-focused infrastructure REIT Crown Castle Inc (US:CCI) has fallen relatively in line with the sector retreating -35.8% lower over 2022. The REIT however pays a 4.41% yield which is above average and has a consensus ‘overweight’ rating and a $181 price target.
Family rental home-focused REIT American Homes 4 Rent (US:AMH) has outperformed its peers with its -25.5% year to date decline. The price outperformance however has resulted in a below-average dividend yield of 2.24%. The stock has a consensus ‘overweight’ rating and a $41 average price target.
Residential home builder, Invitation Homes (US:INVH) has drifted -26% lower over 2022 and pays a 2.64% dividend yield. The stock has a consensus ‘buy’ recommendation and average $42 price target.
Mid-America Apartment Communities Inc (US:MAA) has traded -33.4% lower year to date and currently pays a 3.3% dividend yield. The stock has a consensus ‘overweight’ recommendation and a $193 average price target.
This article originally appeared on Fintel
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