Building Your Portfolio With Real Estate
11/22/06 - 04:06 PM EST
John Reese
This column was originally published on RealMoney on Nov. 22 at 2:04 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
The media is all in a tizzy over acquisitions. This past weekend saw several deals announced worth, in total, $70 billion, according to The New York Times. These included Freeport McMoRan Copper & Gold (FCX Quote - Cramer on FCX - Stock Picks) buying Phelps Dodge (PD Quote - Cramer on PD - Stock Picks), Bank of America (BAC Quote - Cramer on BAC - Stock Picks) purchasing U.S. Trust from Charles Schwab (SCHW Quote - Cramer on SCHW - Stock Picks), and the Nasdaq Stock Market (NDAQ Quote - Cramer on NDAQ - Stock Picks) letting be known it wanted to buy the portion of the London Stock Exchange it doesn't already own. And there were others. My regular readers know that the recent fever pitch of the acquisitions market, as well as other factors (such as the prices of commodities), has led me to focus on specific industries, such as mining and brokerage stocks. One just-announced acquisition that got my attention was the purchase of real estate investment trust Equity Office Properties Trust (EOP Quote - Cramer on EOP - Stock Picks), the nation's largest office building owner and manager, by the private-equity firm, Blackstone Group, for $20 billion, plus the assumption of $16 billion in debt. Looking at this, I decided to check on what the guru strategies think of real estate stocks. I didn't limit my search to REITs, but included other real estate-related companies. In September I wrote about one real estate company, Realogy (H Quote - Cramer on H - Stock Picks), whose holdings include the real estate brokerages Century 21 and Coldwell Banker. Here are four other real estate-related stocks you might want to buy. One of these is Avatar Holdings (AVTR Quote - Cramer on AVTR - Stock Picks), which develops retirement communities in the Sunbelt. While no guru strategy gives Avatar its highest rating, a couple gave it their next-best rating. The strategy I base on William O'Neil's writings likes that Avatar's earnings have increased in four of the past five years, its price today is just a few cents below its 52-week high and its return on equity is a healthy 31.6%. Based on my understanding of Martin Zweig's strategy, Avatar is desirable because its long-term EPS growth rate, adjusted for inflation, is 87% and its three-year average net-profit margin is 9.49%, nearly double the 5% minimum the strategy requires.
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