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As stock prices fluctuate, they can sometimes reach extremes of being overvalued or undervalued relative to their fair value. If prices rise too much, the stock can become “overbought” and the risk of profit-taking, resulting in a price correction, becomes greater than the potential reward of further appreciation. However, when stocks fall too much, buyers step in and the potential for a price recovery becomes greater than the risk of continued decline.
Two useful measures of oversold stocks occur when the RSI is 30 or below and the stochastic oscillator is 20 or below. As the stock price improves, the emergence of these two indicators from oversold territory confirms the likelihood of further gains.
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Take a look at three real estate investment trusts (REITs) that, for various reasons, have recently suffered significant losses and are now in or near technical oversold territory:
Uniti Group Inc. (NYSE:UNIT) is a specialty REIT based in Little Rock, Arkansas. It acquires and builds mission-critical communications infrastructure in the form of fiber optic data, copper and coaxial broadband networks. It owns and operates 140,000 fiber route miles covering 320,000 commercial buildings with more than 28,600 customer connections in 300 metro markets.
The majority of its network is located in the Eastern and Midwestern parts of the US. It is one of the top 10 fiber providers in the US today, and fiber leasing generates the majority of its total revenue. Demand for data, and therefore fiber, has increased due to the advent of 5G networks and the growth of artificial intelligence (AI).
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On May 3, Uniti Group announced a merger with Windstream Holdings II, LLC, in a deal that gives Uniti shareholders 62% and Windstream shareholders 38% of the combined companies’ outstanding common equity. The deal made sense because Uniti is a national wholesale fiber network and Windstream, one of Uniti’s tenants, is a fiber-to-the-home company. When the merger is completed in the second half of 2024 (subject to shareholder and regulator approval), Uniti will have 217,000 fiber route miles in 47 states and $4 billion in revenue.
Uniti also announced plans for a $300 million offering of 10.50% Senior Secured notes by its subsidiaries, due 2028. The proceeds could be used to finance the Windstream merger in lieu of utilizing Uniti’s bridge loan .
Unfortunately, Wall Street was not happy with the proposed merger and Uniti’s shares began to sell off. On May 6, Raymond James downgraded Uniti Group to Outperform from Strong Buy and lowered its price target from $8 to $6. Shares were trading around $5.75, but the downgrade and price cut led to a further sell-off that left the stock in mid-June to $2.57.
Uniti shares are now extremely oversold, with the 14-period RSI at 28.45 and the Full Stochastic at 20.61.
Peakstone Realty Trust Peakstone, Inc. (NYSE:PKST) is an El Segundo, California-based REIT with a diversified portfolio of single-tenant office and industrial properties. Calling itself “America’s Blue-Chip Landlord,” as of April Peakstone had 67 properties with 17.6 million square feet of space across 22 states in high-growth markets. Ninety-six percent of the portfolio is leased with a six-year weighted average lease term (WALT). Peakstone launched its IPO on April 13, 2023.
As a new REIT with numerous office properties, Peakstone’s shares have been extremely volatile since its IPO. Shares initially rose from $7.60 to $38.12, returning to $12 in November 2023. After a brief rally at year-end to $21.42, shares have slowly fallen to a recent low of $10.77. Investors may have been disappointed that Peakstone sold four properties in the past year, as that hurts future earnings and Funds from Operations (FFO).
On May 9, Peakstone announced a quarterly dividend of $0.225 per share, in line with the previous dividend. The current yield on the $0.90 annual dividend is 8.30%.
The full stochastic is now at 7.30 and the 14-period RSI is at 29.26, putting Peakstone Realty in extremely oversold condition.
Clipper Real Estate Inc. (NYSE:CLPR) is a small, self-directed and self-managed REIT based in New York City. Founded in 2017, it owns, manages and operates 11 multifamily residential and commercial properties.
On May 7, Clipper Realty reported first-quarter 2024 earnings results. FFO of $0.14 per share beat the consensus estimate of $0.12 and was up 27.27% from FFO of $0.11 in the first quarter of 2023. However, revenue of $35.760 million fell slightly short of estimates of $36.008 million. Still, Clipper improved revenue in the first quarter of 2023 to $33.667 million.
After touching $5.38 in mid-December, Clipper Realty has been on a downward spiral, with shares recently touching $3.47. Shares are now oversold with the full stochastic at 11.31. However, the 14-period RSI, which bottomed at 20 in April, has strengthened and has since risen to 36. This is called a “bullish divergence” and often precedes a period of price appreciation.
Investors should keep in mind that an oversold position does not guarantee a profitable purchase. It simply shows that the stock is at a point where more buyers than sellers believe the stock is undervalued and may want to buy shares.
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This article Three REITs That Are Extremely Oversold originally appeared on Benzinga.com
