Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 4 stocks made the list for top value stocks in the REITs - Specialized industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Why Focus on Undervalued REITs - Specialized Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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4 Undervalued REITs - Specialized Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 4 undervalued stocks in the REITs - Specialized industry for Thursday, July 11, 2024. Let’s take a closer look at their individual scores to see how they measure up against each other and the REITs - Specialized industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Ares Commercial Real Estate Corp’s Value Grade

Value Grade:

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through its segment, which is primarily focused on directly originating and managing a diversified portfolio of CRE debt-related investments for the Company’s own account. The Company’s target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investments, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, self-storage, student housing, residential, and other commercial real estate properties, or by ownership interests therein. The Company’s portfolio is externally managed by Ares Commercial Real Estate Management LLC (the Manager).

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Ares Commercial Real Estate Corp has a Value Score of 91, which is considered to be undervalued.

When you look at Ares Commercial Real Estate Corp’s price-to-sales ratio at 1.88 compared to the industry median at 2.18, this company has a lower price relative to revenue compared to its peers. This could make Ares Commercial Real Estate Corp’s stock more attractive for value investors.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Ares Commercial Real Estate Corp’s shareholder yield is higher than its industry median ratio of 5.12%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Ares Commercial Real Estate Corp’s price-to-book ratio is lower than its industry median ratio of 0.93. This could make Ares Commercial Real Estate Corp more attractive to investors looking for a new addition to their portfolio.

Apollo Commercial Real Estate Financ Inc’s Value Grade

Value Grade:

Apollo Commercial Real Estate Finance, Inc. is a real estate investment trust. The Company primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings and other commercial real estate-related debt investments. The Company’s principal business objective is to acquire its target assets in order to provide attractive risk-adjusted returns to its stockholders over the long term, primarily through dividends and secondarily through capital appreciation. Its investment strategy is to identify opportunities within its target assets through its manager and its affiliates as well as their platform, which integrates real estate experience with private equity and capital markets in transaction sourcing, underwriting, execution, asset operation, management and disposition. Its target assets are secured by real estate throughout the United States and Europe. The Company is externally managed and advised by ACREFI Management, LLC.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Apollo Commercial Real Estate Financ Inc has a Value Score of 62, which is considered to be undervalued.

Apollo Commercial Real Estate Financ Inc’s price-to-book ratio is higher than its peers. This could make Apollo Commercial Real Estate Financ Inc less attractive for value investors when compared to the industry median at 0.93.

You can read more about Apollo Commercial Real Estate Financ Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

KKR Real Estate Finance Trust Inc’s Value Grade

Value Grade:

KKR Real Estate Finance Trust Inc. is a real estate investment trust. The Company primarily originates or acquires transitional senior loans collateralized by institutional-quality commercial real estate (CRE) assets that are owned and operated by sponsors and located in liquid markets with underlying fundamentals. The Company's target assets also include mezzanine loans, preferred equity and other debt-oriented instruments with these characteristics. The Company's investment objective is capital preservation and the generation of attractive risk-adjusted returns for its stockholders over the long term, primarily through dividends. Its portfolio of diversified investments consists of performing senior and mezzanine loans. It focuses on originating and acquiring senior loans that are secured by CRE properties and evidenced by a first-priority mortgage. The Company is externally managed by KKR Real Estate Finance Manager LLC, an indirect wholly owned subsidiary of KKR & Co. Inc.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

KKR Real Estate Finance Trust Inc has a Value Score of 88, which is considered to be undervalued.

KKR Real Estate Finance Trust Inc’s price-to-book ratio is higher than its peers. This could make KKR Real Estate Finance Trust Inc less attractive for value investors when compared to the industry median at 0.93.

You can read more about KKR Real Estate Finance Trust Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

PennyMac Mortgage Investment Trust’s Value Grade

Value Grade:

PennyMac Mortgage Investment Trust is a specialty finance company. The Company invests primarily in mortgage-related assets. The Company conducts all its operations, and makes investments, through PennyMac Operating Partnership, L.P. and its subsidiaries. The Company's segments include credit sensitive strategies, interest rate sensitive strategies, correspondent production, and corporate. The credit sensitive strategies segment represents its investments in credit risk transfer (CRT) arrangements, subordinate mortgage-backed securities (MBS), distressed loans, and real estate. The interest rate sensitive strategies segment represents its investments in MSRs, excess servicing spread (ESS) purchased from PFSI, Agency and senior non-Agency MBS and the related interest rate hedging activities. The Correspondent Production segment serves as an intermediary between lenders and the capital markets by purchasing, pooling and reselling credit quality loans.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

PennyMac Mortgage Investment Trust has a Value Score of 68, which is considered to be undervalued.

PennyMac Mortgage Investment Trust’s price-earnings ratio is 11.5 compared to the industry median at 23.3. This means that it has a lower price relative to its earnings compared to its peers. This makes PennyMac Mortgage Investment Trust more attractive for value investors.

PennyMac Mortgage Investment Trust’s price-to-book ratio is lower than its peers. This could make PennyMac Mortgage Investment Trust fairly attractive for value investors when compared to the industry median at 0.93.

You can read more about PennyMac Mortgage Investment Trust’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other REITs - Specialized Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about REITs - Specialized stocks as well as other industrys.

Choosing Which of the 4 Best REITs - Specialized Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Ares Commercial Real Estate Corp stock has a Value Grade of A.
• Apollo Commercial Real Estate Financ Inc stock has a Value Grade of B.
• KKR Real Estate Finance Trust Inc stock has a Value Grade of A.
• PennyMac Mortgage Investment Trust stock has a Value Grade of B.

Now that you have a bit more background about each of the 4 undervalued stocks in the REITs - Specialized industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About REITs - Specialized Stocks

Want to learn more about REITs - Specialized stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 4 Undervalued REITs - Specialized Stocks for Thursday, July 11
• 4 Undervalued REITs - Specialized Stocks for Wednesday, July 10
• 4 Undervalued REITs - Specialized Stocks for Tuesday, July 09
• 6 Undervalued REITs - Specialized Stocks for Monday, July 08

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.