Real Estate is the Real Bargain
By Monish Chhabra ǀ January 23, 2023
The market crash of 2022 was most talked about in the context of technology or growth stocks. The impression one gets is that such stocks would be the best bargains coming out of the year.
Yet, statistically, and consistently across various industries and sectors, the biggest bargains we find are in – listed real estate companies in the US.
Most of this sector topped out in 2015-2016 period, hit their first bottom during the Covid crash of 2020, and bottomed again in 2022 owing to the fastest ever rise in interest rates.
The graph below compares the 30-year history of the largest systems software company (orange) with the largest healthcare real estate company (blue).
Both graphs start from the base of 100 in the year 1993.
Both these businesses have had similar normalized growth rate over the last three decades, as shown by the dotted lines that are about parallel to each other.
These dotted lines serve as the expected trajectory of share price growth.
The software company's stock hit the top of its band in 2021. And has since fallen closer to its average trend line in dotted orange.
On the other hand, the real estate stock never went above its mean of dotted blue, and is now at the bottom of its band.
Their position now at the start of 2023, is similar to how they were at the start of 2001.
Over the next 15 years from 2001, the software company’s stock rose by 3-times, while the real estate company went up by 12-times.
A good business does well over time, even if its stock gets overvalued.
However, a similarly good business with a beaten-down stock does much better.
This write-up is for informational purpose only. It may contain inputs from other sources, but represents only the author’s views and opinions. It is not an offer or solicitation for any service or product. It should not be relied upon, used or construed as recommendation or advice. This report has been prepared in good faith. No representation is made as to the accuracy of the information it contains, nor any commitment to update it.