To be sure, this time (and every other) is different, and there is a ton of turmoil on the geopolitical stage; so we are not arguing that caution be thrown to the wind, asserts John Buckingham, value-focused money manager and editor of The Prudent Speculator.
However, we continue to believe that equities, especially Value, are a good hedge against inflation, while we are not unhappy to see folks again focusing on financial fundamentals with so-called meme and other richly valued stocks coming down to earth. Yes, enduring short-term pain isn’t much fun, but undervalued stocks have held up better of late and provided plenty of long-term gain.
Alexandria Real Estate (ARE) is a REIT that owns, operates and develops lab space for life science research in major U.S. markets. ARE has an asset base of 41.1 million rentable square feet (RSF) of operating properties and another 33 million RSF in construction and multi-year development.
Given global demographic and health trends, we expect life sciences to continue to grow at a high rate, and we see Alexandria as the premier name in the space. Of course, rising interest rates, concerns about a softer economy and slowing industry leasing activity have conspired to send shares down some 30% this year. However, ARE’s trends remain strong, the company is well-positioned on many fronts and its boasts consistent execution.
Management expects occupancy levels to stay in the 95% to 96% range for the rest of 2022, and they raised estimates for per share funds from operations (FFO) for 2022 to $8.41 based on cost savings and solid recent results. 97% of ARE’s leases contain a contractual annual rent escalator of approximately 3%.
The consensus analyst FFO estimates for 2023, 2024 and 2025 are a respective $9.08, $9.83 and $10.44, so there is handsome growth projected, even as we see ARE’s base of tenants as defensive with healthy long-term demand for biomedical research. Shares yield a respectable 3.1%.
Despite quarter after quarter of strong performance over the past few years, shares of Goldman Sachs (GS) are off more than 13% this year as the investing world continues to underestimate the firm and its strategic repositioning.
We think plenty of bad news is already priced into the stock, as it trades for a single-digit multiple of the consensus 2022 EPS estimate. We also like the healthy balance sheet, especially as Goldman typically earns a double-digit percentage return on tangible equity.
The build-out of its traditional banking and investment management businesses should serve shareholders well in the long run as management attempts to evolve the trading-and-deal-making titan into a more well-rounded financial firm with more stable consumer and commercial businesses.
It is always worth noting that the firm’s trading operations can potentially do well in weak economic periods and times of heightened financial market volatility. GS shares now offer a 3.0% dividend yield.
Walt Disney (DIS) operates one of the largest diversified media companies in the U.S., is a global leader in producing branded family entertainment, and owns one of the best intellectual property portfolios in the world.
DIS earnings in fiscal Q3 came in substantially ahead of analyst estimates because of growing visitor numbers to the company’s theme parks, a resurgence in sports (benefitting ESPN+) and streaming-service growth. Despite the success, DIS shares have struggled, due in large part to worries that consumers will curtail spending, especially on goods and services that are discretionary, as the economy slows.
There is talk of a spin-off of ESPN, which could unlock additional value now that DIS used the technological foundation to launch Disney+. Sports rights are expensive, with costs increasing, but the eyeballs are there so we still find the business appealing.
We continue to be fans of Disney’s deep library of content, committed fan base and willingness to adapt. We concede that the valuation looks rich in some ways today, but analysts see EPS tripling by fiscal ‘25 from the depressed fiscal ‘21 tally.