It Has Been A ‘Consistent Recommendation Of Mine For Years’ – MASHAHER

“What do we do if we’re out of money? Don’t mutual funds have enough cash? That’s my reaction to today’s market action. Right now, mutual funds know they have to pivot out of consistent growth stocks, especially tech stocks like software and semiconductors, which don’t benefit from rate cuts. They need to swap into companies that can supercharge their earnings as the Fed lowers rates. We all recognize that cyclical stocks, the ones that benefit from lower rates, can go higher, maybe much higher.”

“What’s painful for many of you are the declines in stocks of companies with consistent earnings. These companies, especially tech firms, don’t really need lower rates, and they’re selling off as money managers raise capital to rotate into the rate-cut winners.

So, why don’t we go over the winners and talk about the losers? The rate-cut winners are divided into two camps: stocks with high dividend yields and cyclical companies with earnings that should go higher because lower rates will bolster various industries, especially housing.”

“Let’s start with the most direct beneficiaries: housing. These stocks were all down today because hedge funds and mutual funds bought them aggressively ahead of Friday’s Jackson Hole verdict. Mutual funds are staying long, but hedge funds are ringing the register furiously because they’ve made so much money. Housing stocks had parabolic moves going into the Fed’s Jackson Hole conference, so now these portfolio managers are just taking profits. That’s what you’re supposed to do with a successful trade if you’re a trader.

Remember, these guys are traders, not investors. So, the housing trade is over, but what about the housing investment? I believe Toll Brothers, which just reported a stellar quarter last week, can go higher, maybe much higher. But this reversal is going to constrain the stock because people do not like the technical trends we just saw. We’ve seen multiple long-term reversals after these kinds of moves, and they rarely turn out to be buyable, even though in theory, this should be a great moment for the stock of all the homebuilders.”

“It doesn’t matter, though. This kind of reversal I’m talking about can be hideous. Some of these stocks are very close to their highs, and I don’t like that.”

“Those who have them can hold on, but they flew too close to the sun to attract new buyers. Remember, I’ve said all along that by the time the Fed gives the all-clear, it may be too late to buy the most obvious rate-cut winners. You have to let them recharge, let them come down, and then you can pull the trigger.”

“This mall owner and operator has been a consistent recommendation of mine for years. The stock is currently trading at its highest level since 2021. Despite the stock trading sideways from December until early this month, it recently broke out of that range, gaining 13% since reporting an excellent beat-and-raise quarter on August 5th.

The bull thesis for SPG is twofold: First, while many proclaim that malls are dead, the reality is that high-end malls like those owned by Simon Properties are doing just fine. Their latest quarter showed a 95.6% occupancy rate, up 90 basis points year-over-year, with domestic property net operating income increasing by 4.5%. In plain terms, Simon’s malls are full and growing earnings.

Second, during the pandemic, Simon partnered with Authentic Brands Group to buy struggling retailers, which kept those brands in business and preserved Simon’s rent base. Many of these investments turned out to be very profitable as they were bought at fire-sale prices and have since increased in value. Simon is starting to monetize these investments, boosting their numbers.

Additionally, Simon has a portfolio of outlet malls in Asia, which are performing well but are often overlooked. Simon’s dividend is almost back to pre-pandemic levels, and in many respects, the business is in the best position it has ever been. This makes it a great dividend stock to own in anticipation of lower interest rates.”

Second quarter funds from operations were $1.09 billion or $2.90 per share compared to $1,800 million or $2.88 per share last year. FFO from our real-estate business was $2.93 per share in the second quarter compared to $2.81 in the prior year, a 4.3% growth. Domestic and international operations had a very good quarter and contributed $0.12 of growth. As a reminder, the prior year included a non-cash gain of $0.07 from investment activity related to ABG. Domestic NOI increased 5.2% year-over-year for the quarter. Continued leasing momentum, resilient consumer spending and operational excellence delivered results exceeding our plan for the quarter. Portfolio NOI, which includes our international properties at constant currency, grew 4.8% for the quarter.

Malls and outlet occupancy at the end of the second quarter was 95.6%, an increase of 90 basis points compared to the prior year. The mills occupancy was 98.2%. Average base minimum rent for malls and outlets increased 3% year-over-year and the mills increased 3.9%. As David mentioned, leasing momentum continued across the portfolio. We signed more than 1,400 leases for approximately 4.8 million square feet in the quarter. Approximately 30% of our leasing activity in the second quarter was new deal volume. Our traffic in the second quarter was up 5% compared to last year. And importantly, total sales volumes increased approximately 2% year-over-year. Reported retailer sales per square foot in the second-quarter was $741 for the mall and premium outlets combined.” (Click here to see more…)