The Most Stable REIT to Buy for a Recession

The Fed’s attempts to keep the red-hot inflation under check by aggressively hiking the benchmark interest rates have kept the economy under severe stress. The GDP decline for two consecutive quarters makes many economists believe the economy has already entered a recession.

Investors worried about a recession can consider investing in Real Estate Investment Trusts (REITs). REITs own and operate income-producing real estates such as apartments, warehouses, self-storage facilities, malls, and hotels.

REITs are required to return a minimum of 90% of taxable income to shareholders in the form of dividends every year. Therefore, investing in a stable REIT could help generate steady income and survive a market downturn. Alliance Global Group, Inc. (ALGGY) is one such REIT with a solid track record of paying large and growing dividends.

Headquartered in Quezon City, Philippines, ALGGY engages in real estate development, tourism-entertainment and gaming, food and beverage, quick-service restaurant, and infrastructure development businesses in the Philippines and internationally. The company operates through Megaworld, Emperador, Travellers, and GADC segments.

It develops residential condominium units, subdivision lots, townhouses, office and retail developments, sells townhouses and tourism estate properties; develops integrated resorts; leases office and retail spaces; and operates and manages hotels.

The stock has declined 15.5% in price over the past nine months and 10.2% over the past year to close the last trading session at $8.53.

Here’s what could influence the performance of ALGGY in the upcoming months:

Robust Financials

ALGGY’s group revenues increased 18% year-over-year to PHP37.50 billion ($675.21 million) for the first quarter ended March 31, 2022. The company’s attributable income increased 52% year-over-year to PHP3.90 billion ($70.22 million). In addition, its net profit rose 67% year-over-year to PHP5.40 billion ($97.23 million).

Favorable Analyst Estimates

Analysts expect ALGGY’s revenue for fiscal 2022 and 2023 to increase 2.7% and 26.7% year-over-year to $2.80 billion and $3.55 billion, respectively.

Higher Profitability

In terms of trailing-12-month gross profit margin, ALGGY’s 43.09% is 45.3% higher than the 29.65% industry average. Likewise, its 12.3% trailing-12-month net income margin is 80.9% higher than the industry average of 6.8%. Furthermore, the stock’s trailing-12-month Capex/S came in at 5.13%, compared to the industry average of 2.89%.

Discounted Valuation

In terms of forward EV/EBITDA, ALGGY's 7.53x is 31.2% lower than the 10.95x industry average. Its forward P/S of 0.55x is 58% lower than the 1.32x industry average. Also, the stock's 9.59x forward EV/EBIT is 36.8% lower than the 15.17x industry average.

POWR Ratings Show Promise

ALGGY’s has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ALGGY has a B grade for Value, in sync with its discounted valuation.

It has a B grade for Quality, consistent with its high profitability. Also, it has a 0.80 beta, justifying its B grade for Stability.

ALGGY is ranked first out of 49 stocks in the REITs - Diversified industry. Click here to access ALGGY’s Growth, Momentum, and Sentiment ratings.

Bottom Line

ALGGY is well-positioned to deliver steady returns, given its robust financials, favorable analyst estimates, discounted valuation, and higher-than-industry profitability. So, it could be wise to invest in the stock to cushion your portfolio against the consequences of a potential recession.

How Does Alliance Global Group, Inc. (ALGGY) Stack Up Against its Peers?

ALGGY has an overall POWR Rating of A, equating to a Strong Buy rating. This rating is superior to its peers within the REITs - Diversified industry, such as Land Securities Group plc (LDSCY), Ladder Capital Corp (LADR), and The GEO Group, Inc. (GEO), which all are rated B (Buy).

ALGGY shares were unchanged in premarket trading Tuesday. Year-to-date, ALGGY has declined -27.34%, versus a -12.40% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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