It’s a mega earnings day, with some big names, especially on the tech side, rolling out. We’ll also get some housing data, with the state of that market a hot-button topic for investors as mortgage rates keep climbing.
Last week, existing-home sales marked an eight-straight monthly fall, the first such streak since 2007. That’s as a recent UBS survey showed five big U.S. cities featured as overvalued.
Our call of the day from Jeffrey Kolitch, the portfolio manager of the Baron Real Estate Fund
BREFX,
who sees rare bargains among “best in class” related companies thanks to a big pullback for those stocks this year.
So much so, that if the current downturn leads to a recession, real-estate companies will be at a good starting point, Kolitch said in his recent third-quarter shareholder letter. And while he’s wary about the near term, thanks to central-bank hikes and political risks, he’s more optimistic about the two-to-three view.
Over the first nine months of 2022, many real-estate companies have seen 30% to 60% corrections that have factored in low valuation multiples and expectations for slower growth, said Kolitch, adding that their fund is now “chock-full of real-estate stocks that are unsustainably cheap.”
Kolitch is optimistic due to strong business fundamentals and healthy balance sheets he sees for many companies, along with signs of hope for the overall economy — moderating inflation, plentiful jobs, central bank hiking that’s likely mostly done and a China rebound that’s just getting started.
He also notes that they’ve seen no signs of excessive use of leverage and overbuilding that marked the housing bust of 2008. “We always have our attenae up for warning signs in the real-estate sector,” he said.
Onto his “best-in-class” picks, which must meet criteria that includes: ownership of unique and well-located assets in markets with high barriers to entry, strong long-term growth prospects, sector leaders, conservative and liquid balance sheet and solid management.
Looking at real-estate investment trusts (REITs), Kolitch highlights Invitation Homes
INVH,
the biggest institutional owner of single-family rental homes, focused in neighborhoods with decent schools and employment opportunities. Equity Residential
EQR
is another, the biggest U.S. apartment REIT with high-quality units in choice coastal markets.
Global carrier and cloud-neutral data center operator Equinix
EQIX
and industrial REIT giant Prologis
PLD
also get mentions.
Among residential-related picks are some familiar names, including home builders Lennar
LEN
and Toll Brothers
TOL
and home-improvement retailer Lowe’s Companies
LOW,
who each get the nod for cheap valuations, along with hard-surface flooring specialist Floor & Decor
FND.
Among alternative asset managers, Kolitch notes Brookfield Asset Management
CA:BAM
is valued at a more than 50% discount to management’s own assessment, while biggie Blackstone
BX
is valued at a “modest premium” to the S&P 500 index despite “far superior long-term growth prospects.”
Under the travel-related real estate umbrella, the manager likes casino group MGM Resorts International’s
MGM
“compelling” value, along with mountain resorts giant Vail Resorts
MTN.
The markets
MarketWatch
Stock futures
ES00
NQ00
are lower after the S&P 500 saw its best close in a month, with bond yields
BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
edging lower, the dollar
DXY
up slightly and oil prices
CL
BRN00
are down a second day on demand concerns. Bitcoin
BTCUSD
is trading around $19,356.
The buzz
Earnings are rolling in from some big names. GE
GE
is down on a profit miss, along with Xerox
XRX,
while Coca-Cola
KO
is up on forecast-beating results, along with UPS
UPS
and Raytheon
RTX
and Biogen
BIIB.
3M
MMM
is falling on mixed results.
After the bell, we’ll hear from Microsoft
MSFT
(preview), Alphabet
GOOGL
(preview), Twitter
TWTR
and Texas Instruments
TXN
on the tech front. Elsewhere, Visa
V,
Chipotle
CMG,
Spotify
SPOT
and Mattel
MAT
are also in the late lineup.
Canopy Growth said it will create a U.S. holding company and exchangeable share structure
Shares of Weber
WEBR
are up 24% in premarket, matching the premium offered by its biggest shareholder to buy the grill maker’s remaining stock for $6.25 each.
The S&P Case-Shiller and Federal Housing Finance Agency will release August home-price indexes at 9 a.m. Eastern, followed by a consumer confidence index.
Adidas
XE:ADS
has ended its partnership with rapper Kanye West over his recent slew of antisemitic remarks that also have led to his talent agency dropping him and bans by Twitter
TWTR
and Instagram.
Best of the web
TikTok plans to use your data to fuel its multibillion-dollar shopping mall
Mud, the environmentally friendly beauty all-star that may save us all. (subscription required)
Doctor who survived Ebola, says we have a few months to get ready for the next pandemic
The chart
How sticky is high inflation? A team of strategists at Deutsche Bank, led by Jim Reid, have taken a look at consumer price inflation from 1920 (where available) onward for 50 developed and emerging market countries, when inflation reaches 8%.
Deutsche Bank
“Looking at this full history, the evidence shows that once inflation spikes above 8%,
median inflation takes around 2 years to even fall beneath 6%, before settling
around that level out to 5 years after the initial 8% shock. This is around 2pp above
the pre-shock median of c. 4%,” said the strategists. U.S. CPI hit 8.5% in March.
As they point out, current consensus expects inflation to be back or even below 3% just two years after that first breach of 8%. While “history never repeats exactly,” when inflation normally breaches these thresholds, history shows it’s fairly sticky, especially in post-1970 periods,” said Reid and the team.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:
| Ticker | Security name |
| TSLA | Tesla |
| MULN | Mullen Automotive |
| GME | GameStop |
| NIO | NIO |
| AMC | AMC Entertainment |
| APE | AMC Entertainment preferred shares |
| BABA | Alibaba |
| AAPL | Apple |
| BBBY | Bed Bath & Beyond |
| TWTR |
Random reads
New Zealand is struggling to fill this “dream job” on a UNESCO heritage site
Swedish archaeologists unearth a long-lost 17th-century warship
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton
