After rallying from around $6 in March 2003 to almost $29 in February 2007, HST, like many other stocks at the time, gave it all back during the 2008-2009 financial crisis, bottoming near $3 in March 2009.
After nearly reaching $25 in late 2014, a downturn in 2015 took HST close to $12. But by January 24 of this year the stock was trading above $21—a 77% rally and a nearly 600% increase from the 2009 low.
After so-so years in 2016 and 2017 (positive but lagging the broad market), some analysts are looking for an uptick in REIT fortunes on the back of continued global economic expansion—and a disconnect between REIT stock prices and the value of their assets.1 In other words, some of these stocks may be bargains.
There’s also the argument that the increased business costs stemming from a rising interest rate environment are more than offset by the increased revenues that come with a hot economy—Exhibit A being the outperformance of REITs relative to the S&P 500 (SPX) from July 2004 through June 2006, a period when the Federal Reserve increased rates from 1.25% to 5.25% and 10-year Treasury yields topped 5%.2
Just as out-of-favor stocks with solid underpinnings and dividends can be quite attractive to long-term investors, temporarily oversold stocks can be attractive to short-term traders. HST put on a fireworks display yesterday after it released earnings, selling off more than 3% on the open before reversing almost immediately to go up more than 1% on the day—a “spike” low that initially appeared to be a breakdown in share prices but then looked like it could represent a more bullish interpretation of the days’ news. (Later in the session the stock was again down on the day, but still well off its lows.)
And what about that news? Earnings were good (a surprise 3-cent beat, 42 cents vs. 39 cents), revenue met expectations, and HST announced it had penned an agreement to add three Hyatt-managed hotels to its portfolio.3
One of the great thing about spikes—which can sometimes mark at least temporary sentiment extremes—is that they offer handy risk-management reference points. For example, the longer prices remain above a spike low, the more the spike can look like a significant turning point. If the spike low is penetrated quickly, it will look less like an important support level.
By the time the dust was settling yesterday afternoon, HST was trading in the lower half of its post-correction range (roughly $18.75-$20)—an attractive level in the event a broader market rebound continues, and especially if REITs stage their long-awaited comeback.
1 Forbes. REITs To Bounce Back In 2018 Following This Year's Lagging Performance. 12/8/17.
2 DividendChannel.com. Why REITs Will Soar in 2018 (and 5 to Buy Now). 1/9/18.
3 Zacks. Host Hotels' (HST) Q4 FFO Beats Estimates, Revenues Grow Y/Y. 2/22/18.