This week, in our focus on the winning analysts in each industry category from our
Analyst Rankings -- Equity 2000
, we profile the top analysts tracking real estate investment trusts. (Our last focus was on
diversified financial services.) Next week we'll look at alternative carriers, our first category in the telecommunications equipment and services sector.
REITs are unusual assets. Since they don't have to pay corporate taxes as long as they pass their income from rent on to their investors, they tend to pay high dividends. These dividends are taxed as ordinary income, so an individual investor's actual returns may be significantly lower than those enjoyed by tax-exempt institutions and pension funds.
All three of our top-ranked analysts have been relishing the sector's rebound from its slump in 1998 and 1999. These stocks are up an average of 20% this year, says first-place winner Jonathan Litt. A main driver of the shares' gains, observes No. 2 analyst Larry Raiman, is the battering of the tech-heavy Nasdaq, which has prompted investors to look for counterperformers.
Fundamentals in most segments of the industry are healthy, say our winning trio, who concur that downtown office and multifamily properties in tight regional markets are hot. Major metropolitan areas like Boston, New York, Washington, D.C. and San Francisco, for example, are enjoying a boom time fueled by strong demand, a limited supply of buildings and barriers to new construction. Litt and third-place analyst Greg Whyte both name
Equity Office Properties
as their top pick, while Raiman selects
, a multifamily REIT.
The three analysts are more cautious about other types of property categories. Whyte prefers regional malls to strip shopping centers and would avoid outlet malls altogether. Litt is concerned about suburban office properties in the South due to overbuilding, and Raiman advises steering clear of the health care REIT sector.
Rate Their Stock Picks:
Which stock do you like best?
Litt and Whyte: Equity Office Properties
Raiman: Equity Residential