Wall Street analysts worry that REITs have run up too far too fast
An article on Marketwatch suggests that REITs may not be able to come up much higher.
REITs do rely heavily on the capital markets and a number of them were over-levered, which caused the market to punish the entire sector very heavily in late 2008 and early 2009. However, REITs have doubled or better off their lows. Indeed, they've risen 30% in just the last 3 months.
As a result, analysts are worrying that the easy money has already been made. Additionally, they are sensitive to the economy and the state of the credit markets. Both are improving but will not be as strong as they once were for a long time. Some analysts are advising folks to sell.
I tend to agree that the easy money has been made. I own one REIT, Realty Income (O), which I believe to be one of the, and possibly the, strongest REITs out there. I believe that Realty Income is about fairly valued and would only be interested in buying more under $24 and preferably under $23 - and we might just get the chance if the downturn lasts a bit longer. I also have my eyes on Health Care REIT (HCN). If I had the money, I'd like to pick up shares under $40. I feel that these two REITs are in excellent financial shape and that they're well managed.
In a broader context, I don't think these stocks are the strongest buys out there. I like the stronger pharmaceutical companies like Novartis and J&J better. I also like Paychex a lot better. Additionally, the MLPs I hold and have recommended here have lagged the market and are still buys.