I think we’re at the cusp of an enormous market reversal.

That might sound like an obvious and even insensitive comment. But I’m not talking about share prices cratering like we’ve seen them do the last few days.

We’re all aware of that dramatic shift thanks to President Trump’s reciprocal tariffs announcement. The S&P 500 went into pure panic mode at the news, closing down 4.84% on Thursday and 5.97% on Friday. The Nasdaq lost 5.97% on Thursday and another 5.82% on Friday. And the Dow dropped perilously close to 4% and then a full 5.5%.

That made it their worst week since the 2020 shutdowns. Even gold fell as everyone raced to avoid falling knives: the very definition of an overreaction.

Wide Moat Research analyst Stephen Hester did an excellent job on Friday describing the sell-off – intense and even painful as it might feel – as a buying opportunity. You can (and probably should) read the entire article here.

It’s extremely reassuring, pointing out how every previous market crisis… whenever it seemed as if the sky truly was falling… ended up being a temporary situation and even a buying opportunity, not a time to sell.

Stephen listed off four specific sectors: consumer staples, pharmaceuticals, telecommunications, and energy. And while I very much agree with him on those selections, I’m going to have to add commercial real estate to the list.

This is particularly true of real estate investment trusts, or REITs. They’ve been so unloved for so long, falling by the wayside as the Magnificent Seven tech companies dominated the markets.

But I don’t think they’ll be nearly so dominant going forward as investors turn to the safety of REITs.

We’ve Seen REITs Rise From Obscurity Before

The markets tend to go all-in on fear or greed. “Mr. Market” also tends to get obsessed with certain sectors at specific times.

That’s why we have bubbles. And we’ve certainly been in one for the last three years as everyone obsesses over the Magnificent Seven.

Apple (AAPL). Alphabet (GOOG). Amazon (AMZN). Meta Platforms (META). Microsoft (MSFT). Nvidia (NVDA). Tesla (TSLA). It has been as if nothing else mattered. These companies have dominated the financial news, even accounting for the lion’s share of market gains month after month.

Nobody cared that their valuations were pushing into the stratosphere where only perfection could be tolerated. Investors believed they were too awesome to fail.

Meanwhile, the larger REIT sector, with its low prices and excellent balance sheets, have lagged badly. But I think we’re in store for a reversal if history is any indication.

Remember how we saw this same story play out in the late 1990s? Remember how tech stocks of all shapes and sizes soared while REITs and other value stocks stagnated?

We all know how that ended on the tech side of the equation: The Nasdaq crashed, leaving its acolytes burned. And just like that, investors began putting their money in safe plays instead.

The result was that REITs enjoyed years and years of investment favor. As just one example, a quality, triple-net lease REIT like Realty Income (O) returned some 103%, including dividends, between January 2000 and December 2002. Meanwhile, the S&P 500 sank nearly 42%.

Now, I’m not saying to sell all your tech positions, that they’re incapable of profiting anymore. Not even close. You still want to hold a well-balanced portfolio, refusing to rely on a single sector for your future financial health.

With that said, I do expect REITs to start doing much, much better than they have been. And if we do fall into an official – temporary – recession because of Trump’s tariffs, it will be that much more reason for investors to play it safe.

That’s why I expect early-in REIT investors to be the happiest of all.

The Right REITs for These Heavy Tech Times

Even now, while the chaos still rages, this is the perfect backdrop for some of the most resilient REIT sectors. I’m specifically interested in:

  • Net-lease

  • Manufactured housing

  • Grocery anchored retail

Their “safe haven” attributes should provide reliable and predictable revenue regardless of macroeconomic conditions.

Among the net-lease REITs that Wide Moat likes the most include Realty Income, Agree Realty (ADC), and VICI Properties (VICI). They all have strong liquidity and wider weighted average cost of capital spreads.

Plus, they’ve all generated reliable growth historically and should continue to going forward. Though it’s Agree that’s my top pick of the three since 68.2% of its tenants are investment-grade.

The manufactured housing sector, meanwhile, has its own unique “recession-proof” attributes. It operates with limited supply, for starters, since it’s difficult to get the permits necessary to open a new mobile home community.

Plus, many of its residents pay their site rent with social security, pensions, and savings. And those don’t fall with the markets.

The top names in this sector are Equity Lifestyle Properties (ELS) and Sun Communities (SUI). Both enjoy a history of resilient positive same-store net operating income growth through multiple downturns.

But if I had to pick between the two, I’d have to choose Sun Communities. It recently announced that it will be unloading its marina business to Blackstone for $5.65 billion. That will allow it to deleverage its balance sheet and focus on its core mobile home and RV park businesses.

Finally, in the grocery-anchored retail space, these business models are essential. Everyone needs to eat, and people tend to frequent grocery stores more – and restaurants less – during downturns. That gives supermarket landlords defensible and repeatable income.

Wide Moat’s top picks among them include Regency Centers (REG), Kimco Realty (KIM), and Brixmor Property (BRX). Though, once again, I have my favorite of that selection.

Regency has strong free cash flow, an A3 Moody’s rating, and more than $1.4 billion left on its unsecured credit line. More than 80% of its portfolio consists of grocery-anchored properties. And they’re all located in suburban trade areas with compelling demographics.

If I’m right about the incoming recession, these landlords should weather the storms just fine. And if I’m right about the new REIT rally, their investors should come out ahead as well.

For more important stock tips during these changing times, tune in to The Wide Moat Show on YouTube. This Thursday, at 11:00 a.m. EST, Wide Moat analyst Nick Ward and I will be discussing sucker-yield stocks to avoid.

Have a great week and happy SWAN (sleep well at night) investing!

Source: Wide Moat Research

Regards,

Brad Thomas
Editor, Wide Moat Daily

MAILBAG

Do you agree with Brad that there will be a REIT rally? Write us at [email protected].