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 - commentary - Cramer's Take) buying Phelps Dodge (PD - commentary - Cramer's Take), Bank of America (BAC - commentary - Cramer's Take) purchasing U.S. Trust from Charles Schwab (SCHW - commentary - Cramer's Take), and the Nasdaq Stock Market (NDAQ - commentary - Cramer's Take) 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 - commentary - Cramer's Take), 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 - commentary - Cramer's Take), 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 - commentary - Cramer's Take), 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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At the time of publication, Reese had no positions, although holdings can change at any time.
John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.
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