Daily Stock Pick: October 19th, 2021

Stocks ticked higher this morning after another winning day for the S&P 500 and the Nasdaq.  The Dow was looking to turn things around in early trading after a slight loss yesterday. Over the past week, strong earnings results from major companies has helped lift the Dow and the S&P 500 to within 1% of their record highs. This afternoon we’ll find out if Netflix (NFLX) and United Airlines (UA) will contribute to the trend.

Real estate investing has been a solid choice so far in 2021.  The Real Estate Select Sector SPDR Fund (XLRE) is up more than 30% so far for the year, while the S&P 500 has only gained around 21%.  One way that investors can harness the potential of real estate investing is through REITs.

Many consider REITs essential to a well-balanced portfolio.  Because real estate is an asset class that’s not directly tied to traditional markets, REITs can bolster your portfolio when markets take a plunge.  REITs are also not required to pay federal taxes so long as they distribute at least 90% of their profits as dividends, making an investment in a quality REIT a relatively steady source of income.  

“REITs offer a unique risk/reward profile that doesn’t always perfectly correlate with stocks or bonds,” says Michael Yoder, a CFP in Walnut Creek, Calif. “This can make them an important portfolio diversifier.”

Not all REITs are created equally, though, and finding the right REIT can be challenging.  In today’s stock pick, we’ll look at a leading REIT in a particularly attractive category.  

Summit Hotel Properties, Inc (INN) is a leading publicly traded REIT focused on owning premium-branded, select-service hotels in the upscale and upper-midscale segments of the lodging industry.  As hotel demand continues to recover broadly, Summit’s revenue per available room has increased to near pre-pandemic levels, resulting in  $71 million of additional annualized revenue.

In the wake of the recent market slump, INN is outperforming compared to its REIT peers.  The stock is up more than 10% for the past month compared to the S&P Real Estate Sector Fund (XLRE), which is null for that same period.  The trust is also outperforming the broader market over the past year.  Summit shares have increased 97%.  In comparison, the S&P 500 has only moved 31%.

One factor contributing to the ongoing strength of INN’s share price is the level of attention trust management gives to portfolio diversification. INN’sportfolio currently boasts 73 properties, 61 of which are wholly owned.  The REIT owns properties in 23 U.S. states spread across all regions, and no single region in the portfolio comprises more than 8% of the portfolio.  This safeguards the trust, to some degree, against unpredictable threats that can arise.  

INN has been exhibiting strong momentum ahead of its November 3rd Q3 earnings call. Analysts forecast that Summit will report $101.16 million in sales for the third quarter, representing a 93% growth rate over the same quarter last year when the company reported $52.41 million in sales. 

The Wall Street analyst rating is bullish for INN with 7 Buy ratings and 1 Sell rating.  A median 12-month price target of $11.50 represents a 13% increase from the current price.  

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Before you consider buying Summit, you'll want to see this.

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