There are a number of ways to play the recession / depression on the market that might seem, at first, counter-intuitive but on second glance make sense. Here's one -- Public Storage (NYSE: PSA), a REIT focused on ownership of public storage facilities. Like the rest of the real estate market, it's been hammered -- down just over 52% from 52-week highs of $110 per share. But public / self storage facilities should actually prosper in this market. Here's why: People still have a lot of stuff, but many of them are going to have less house very soon. Same goes for businesses that are putting off plans to expand offices or rent warehouses and need a place to park things.
While Americans are definitely weaning themselves off the buying binge of the last two decades, I find it very hard to believe that they will completely stop shopping anytime soon -- or ditch their packrat mentality. Conventional wisdom holds that as people stop moving houses, then the public storage facility market gets hammered, but I believe that fails to take into effect a counter trend that people are using public facilities even when they aren't moving simply to store their stuff -- and that's actually a trend that, if anything, will be augmented by stagnant incomes and slightly declining but still robust consumption (even if you spend 10% less, you still have plenty of stuff to store!).
It is heavily exposed to the California market, with 1/5 of its operations there. While this is a potential negative due to the dire straits of the Golden State, it might also be a bottom-picking opportunity.
PSA is pricier than its peers with a P/E of 14, but it's also the cream of the crop in terms of real estates, and it's bigger so it enjoys economies of scale. PSA is a darling of the smart money, hedge fund crowd, to boot.
The company reports earnings next week and it just bought back roughly $110 million in outstanding notes for Shurgard, a company it acquired, so cash does not seem to be a huge problem. Look at this as an interesting way to play an extended downturn.
Alex Salkever is the Director of Research at Piqqem.com, an online stock research and voting tool that harnesses the "wisdom of crowds."
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Reader Comments (Page 1 of 1)
2-11-2009 @ 5:39PM
jonathan said...
The public storage preferreds are a better option than the common.