Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 5 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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5 Undervalued REITs - Specialized Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 5 undervalued stocks in the REITs - Specialized industry for Thursday, February 16, 2023. 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.

Broadmark Realty Capital Inc’s Value Grade

Value Grade:

Broadmark Realty Capital Inc. is an internally managed real estate investment trust (REIT). The Company specializes in underwriting, funding, servicing and managing a portfolio of short-term, first deed of trust loans to fund the construction and development of, or investment in, residential or commercial properties. It is engaged in providing financing solutions approximately $2 to $50 million range across the entire debt capital stack for commercial and residential real estate opportunities throughout the United States. It offers construction loans, land development loans, heavy rehab / redevelopment loans, and bridge financing loans. Its construction loans are designed for vertical construction of projects, such as multi-family housing, single-family housing, commercial, office, and industrial buildings. Its heavy rehab / redevelopment loans are designed for improvements on multi-family units and commercial, office, hospitality, and industrial buildings.

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.

Broadmark Realty Capital Inc has a Value Score of 76, which is considered to be undervalued.

When you look at Broadmark Realty Capital Inc’s price-to-sales ratio at 5.01 compared to the industry median at 2.94, this company has a higher price relative to revenue compared to its peers. This could make Broadmark Realty Capital Inc’s stock less attractive for value investors.

Broadmark Realty Capital Inc’s price-earnings ratio is 9.94 compared to the industry median at 16.27. This means it has a lower share price relative to earnings compared to its peers. This could make Broadmark Realty Capital Inc more attractive for value investors.

Now, let’s assess Broadmark Realty Capital Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 9.8, when compared to the industry median of 17.5, the company may be considered undervalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

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. Broadmark Realty Capital Inc’s shareholder yield is higher than its industry median ratio of 2.95%. 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. Broadmark Realty Capital Inc’s price-to-book ratio is lower than its industry median ratio of 1.00. This could make Broadmark Realty Capital Inc more attractive to investors looking for a new addition to their portfolio.

Diversified Healthcare Trust’s Value Grade

Value Grade:

Diversified Healthcare Trust, formerly Senior Housing Properties Trust, is a healthcare real estate investment trust (REIT). The Company is focused on healthcare and life sciences located throughout the United States. Its segments include triple net senior living communities that provide short term and long term residential care and other services for residents; managed senior living communities that provide short term and long term residential care and other services for residents; properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, and all other, including certain properties that offer wellness, fitness and spa services to members. Properties in triple net senior living communities segment include leased independent living communities, assisted living communities and skilled nursing facilities. Properties in managed senior living communities segment include managed independent living communities and assisted living communities.

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.

Diversified Healthcare Trust has a Value Score of 96, which is considered to be undervalued.

Diversified Healthcare Trust’s price-earnings ratio is 0.4 compared to the industry median at 16.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Diversified Healthcare Trust more attractive for value investors.

Diversified Healthcare Trust’s price-to-book ratio is higher than its peers. This could make Diversified Healthcare Trust less attractive for value investors when compared to the industry median at 1.00.

You can read more about Diversified Healthcare 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.

Invesco Mortgage Capital Inc’s Value Grade

Value Grade:

Invesco Mortgage Capital Inc. is primarily focused on investing in, financing and managing mortgage-backed securities (MBS) and other mortgage-related assets. The Company's objective is to provide attractive risk-adjusted returns to its primarily through dividends and secondarily through capital appreciation. The Company invests in residential mortgage-backed securities (RMBS), which are guaranteed by a United States government agency, such as the Government National Mortgage Association (Ginnie Mae), a federally chartered corporation, such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), collectively known as Agency RMBS. The Company also invests in commercial mortgage-backed securities (CMBS) and RMBS, which are not guaranteed by a United States government agency or a federally chartered corporation (non-Agency CMBS), as well as commercial mortgage loans and other real estate-related financing arrangements.

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.

Invesco Mortgage Capital Inc has a Value Score of 61, which is considered to be undervalued.

Invesco Mortgage Capital Inc’s price-to-book ratio is lower than its peers. This could make Invesco Mortgage Capital Inc fairly attractive for value investors when compared to the industry median at 1.00.

You can read more about Invesco Mortgage Capital 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.

Mfa Financial Inc’s Value Grade

Value Grade:

MFA Financial, Inc. is an internally-managed real estate investment trust that invests in and finances residential mortgage assets. The Company’s targeted investments include principally residential whole loans, including purchased performing loans, purchased credit deteriorated and purchased non-performing loans. The Company also owns residential real estate (REO); residential mortgage securities, including credit risk transfer securities, and MSR-related assets, which include term notes backed directly or indirectly by mortgage servicing rights (MSRs). The Company’s principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals. The Company selectively invests in residential mortgage assets with a focus on credit analysis, projected prepayment rates, interest rate sensitivity and expected return.

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.

Mfa Financial Inc has a Value Score of 83, which is considered to be undervalued.

Mfa Financial Inc’s price-to-book ratio is higher than its peers. This could make Mfa Financial Inc less attractive for value investors when compared to the industry median at 1.00.

You can read more about Mfa Financial 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.

Seven Hills Realty Trust’s Value Grade

Value Grade:

Seven Hills Realty Trust is a real estate investment trust. The Company's investment objective is to balance capital preservation with generating attractive, risk-adjusted returns on its investments. The Company focuses on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate. The Company invests in first mortgage loans, which have principal balances of approximately up to $75.0 million. The Company has approximately $37 billion in assets under management (AUM). It operates approximately 30 regional offices located throughout the United States. Tremont Realty Capital is the investment manager of the Company.

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.

Seven Hills Realty Trust has a Value Score of 78, which is considered to be undervalued.

Seven Hills Realty Trust’s price-earnings ratio is 5.8 compared to the industry median at 16.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Seven Hills Realty Trust more attractive for value investors.

Seven Hills Realty Trust’s price-to-book ratio is higher than its peers. This could make Seven Hills Realty Trust less attractive for value investors when compared to the industry median at 1.00.

You can read more about Seven Hills Realty 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 5 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.

• Broadmark Realty Capital Inc stock has a Value Grade of B.
• Diversified Healthcare Trust stock has a Value Grade of A.
• Invesco Mortgage Capital Inc stock has a Value Grade of B.
• Mfa Financial Inc stock has a Value Grade of A.
• Seven Hills Realty Trust stock has a Value Grade of B.

Now that you have a bit more background about each of the 5 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.

• 5 Undervalued REITs - Specialized Stocks for Thursday, February 16
• 5 Undervalued REITs - Specialized Stocks for Wednesday, February 15
• Which Is a Better Investment, Caretrust REIT Inc or Medical Properties Trust Inc Stock?
• Which Is a Better Investment, Caretrust REIT Inc or Omega Healthcare Investors Inc Stock?

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.