Steven Cress' 3 REITs for inflationary, heated times

0:10Steven Cress, our head of quant. We are always very, very happy to talk to you. Welcome back to Investing Experts. Great to have you on again. Thank you so much for having me and arranging this and a perfect day to focus on the markets as they're getting really crushed today. So I think the timing is good for this presentation of dividend stocks in light of our inflation numbers from last week and geopolitical events, which have hit peak levels over the weekend. So very good timing, Rita. Thank you. Even if it seems confusing and upsetting, there are deals to be had, as you are always reminding us.

0:48As investors, there is context and understand where the alpha is to be found. So if you could start with some context around the market, what you've been seeing the past few days, what you may expect to see in the coming days. Absolutely. Well, I have my sleeves rolled up today. It's all about business and following our stocks and the markets, almost on a real-time basis, looking at the markets and what's looking at the economy and geopolitical events over the weekend. So really looking at all the news. Unfortunately, because of our legal department, I got to do this disclaimer really quickly.

1:27I apologize in advance, but I will read it as quickly as possible. We are not advising you personally concerning the nature, potential, value, or suitability of any particular security. You, loaner, solely responsible for determining whether any investment security strategy or product or service is appropriate or suitable for you based on your investment objectives and personal and financial situation. This presentation is for information purposes only. Content is presented as of the date published or indicated and may be superseded by subsequent events. It represents my opinions, which may not reflect the views of CK Alpha as a whole.

1:55Past performance is no guarantee of future results. CK Alpha is not, at least a security dealer broker or U.S. investment advisor or investment bank. Again, apologies for having to put you through that. Do you remember those micro machine commercials? I think it was the 80s or 90s. Remember that guy? Yeah, do you think I'm faster than that? Yeah, definitely, Steve. You're number one. Let's call the Guinness Book, for God's sakes. Yes, I time myself every week to see how fast I can get through that. Beat your own world record, I think, on that one. it is painful so yes absolutely a little bit of a a market update here um so obviously over the weekend the u.s and israeli airstrikes um were a major catalyst impacting global events and just whether the hours hours preceding that we saw a ban on anthropic ai technology which of course was sort of like the deep seat this year a little bit of deja vu about a year ago we had the same situation with the AI markets being disrupted and many stocks coming off sharply off of deep seat.

2:56And this year was Anthropik. But almost within weeks of that, the US Department of Defense having a major issue with Anthropik and putting bans on it. So a world of hurt for AI stocks. And then, of course, we had geopolitical events over the weekend. And then last week, We had some economic data, which really showed that inflation is more than sticky. It's quite heated. And the market's just not reacting well to that. And it's just about the worst margins we've had since last March. So again, deja vu. So what I'm presenting today on the back of especially the inflation numbers, which January 2026 core CPI came in at 2.5 % and PPI came in 2.9 % year over year.

3:41headline CPI did cool a little bit to 2.4%. So maybe that helped with a soft landing narrative, but the other numbers did not, especially data points that revolve around energy and the cost of transportation and many indirect areas that come off of energy. We saw inflation. So what we're doing today is in light of the volatility uncertainty, we're presenting some stocks that have strong dividend yields. And that's a good way to protect yourself or hedge yourself against inflation. And obviously, when geopolitical events get quite hot as they are now, it's also a good way to hedge yourself. You get paid to wait in essence.

4:24And the average yield, the average dividend forward yield, I believe is about 5.64 % on the three stocks that I will be presenting on today. So a little bit more on the geopolitical events and how it's impacting markets and sectors, you'll see year to date, this trend has been fairly solid. Energy is up a whopping 27.5 % year to date. Basic materials are up 17.4%. So really up until like the last week or so, we saw, especially with gold and silver hitting record levels, I will say gold has come off and silver has come off a bit sharper today than most people expected. It's down about 2.46 % on the day.

5:06Industrial stocks up about 15 % and consumer staples up 14 % year to date, as you can see on the far right. So definitely a rotation into defensive oriented sectors. Really, the MAG7 has actually been underperforming the S &P 500. So that is probably most reflective of what's happening in the AI space. And there are many high beta AI stocks that have performed incredibly well for the quant system, which have come off sharply in the last couple of weeks. And they look like they're presenting some good opportunities. And conversely, if you look, you'll see financial services year to date is off 6.3%, consumer discretionary off 3.3 % and technology off 3%.

5:49So the higher risk sector is not performing well this year, underperforming the S &P 500. And that really sort of highlights how this rotation is occurring. Of course, rising oil prices and sticky inflation have complicated the Fed outlook and the upcoming FOMC meeting. Most interest rate traders now no longer believe we'll be having an interest rate cut. But as I mentioned earlier, deja vu, worst month since last March, a couple of days into March, and you can see already it's come off quite sharply. So it really feels like last year. However, geopolitical events are definitely a little bit more heated.

6:27Tariffs were a bit of an issue off of the back of the Supreme Court, basically not supporting the administration and the tariffs that they have put forward. But of course, the administration coming up with some new tariffs immediately in the face of the Supreme Court ruling. So still, even uncertainty all over the place is occurring, and markets do not like uncertainty. So another reason to own dividend stocks during this period, inflation heating up, and so are energy costs. So historically, when PPI hits 2.9 % and outpaces CPI, which is at 2.4%, it puts the S &P 500 under pressure. And this contributes to volatility.

7:05And you can see over the last five years, some of the CPI increases. Gas utilities up 46%, fuel oil up 45%, transportation up 43%, electricity up 36%, gasoline up 36%. So a major component of inflation being these energy costs, the largest component of inflation is labor. Interesting enough, the labor market actually started to worsen in the second half of last year. And that is what led the Fed to lower rates three times. It was actually not inflation, but it was labor that led the Fed to lower interest rates. And as we've come into this year, the labor market does not seem to be in as much trouble.

7:48So the combination of the sticky inflation and a labor market that seems to have settled down has led most interest rate traders to believe that we will not see an interest rate cut for the upcoming Fed meeting, the FOMC meeting for March 18th, that 97 % of interest rate traders believe there will be no cut. Only 2.6 % believe there will be a cut. If you look back maybe four months ago, this picture would have been very different. Many of interest rate traders would have expected more interest rate cuts to occur at this point of the year. So indeed, most interest rate traders betting it will not happen.

8:27I will say one of the products that I do manage, and we'll talk about this at the end, is AlphaPix. We have about 41 stocks in AlphaPix. AlphaPix is a product where each month I highlight my two favorite ideas. And we send an email out. This is a product that's separate from Seeking Alpha Premium and Seeking Alpha Pro. So it's sort of a standalone product. And it focuses just on the two top quant ideas. Of the 41 stocks, 14 of them actually pay a dividend. So it's actually a very nice diversified product that has geographic, some geographic diversity to it through ADRs. But for the most part, it's US common stocks or ADRs that are primarily listed in the US.

9:07Market cap above 500 million. So it has small cap, mid cap, large cap. And again, it has stocks that do pay dividends and the average yield at 1.7 % is actually higher than the Vanguard income and growth index, which has a lower forward average yield. So the other thing that I wanted to highlight with AlphaPix is with 35 of the 41 stocks that have reported, 29 of the 35 beat EPS expectations. That's a rate of 83%, which is much higher than the broader S &P 500. So the product performing quite well. And what I was just talking about with Rina is that despite the companies coming through and beating top line and bottom line, many of the stocks have been getting slammed over the last couple of days.

9:55We're looking at like Credo and Micron. And when they go down like that, when there are slides like that for buys that you've called, there's going to be and there always is many questions. Well, what about now? Well, what about now? Should we sell? Your point is always a hold is not a sell. But what other context would you offer, as we've seen in so many instances, a chasm between reality and sentiment? So really, you know, sentiment tends to have an impact on markets for a number of weeks to months, maybe a couple of quarters. Eventually, the market always returns back to fundamentals. So that's why you hear so often from people who have been in the world of finance for a long time.

10:36You want to take advantage of stocks when they get hit hard like this, but you want to buy the ones that have good fundamentals. And what we do for AlphaPix and our other product and our Quant Strong Buys in general, we look for stocks that are collectively strong on value, growth, profitability, positive analyst revisions, and momentum. And those stocks typically that have very solid balance sheets, strong income statements, great financials. And what we do with our quant system is we compare them to all the other stocks. So we take a stock, compare it to all the other stocks in the sector, and we rank it on those investment characteristics that I mentioned.

11:13And that's how we are able to pick the strong from the weak. However, when sentiment and fear are high, people tend to sell those stocks, especially the ones that have performed well, and they rotate into cash or gold or safe haven sectors. And that's always temporary. So the opportunity that it presents is actually the stocks weaken, and you want to buy those stocks with strong fundamentals when they weaken. And I was actually doing that myself today. I bought Credo. I bought MU, both of which you mentioned. And I can actually take us to the platform. So I'm going to go to the platform and we're going to get back to the dividend stocks, but I'll pull up something like MU, Make Run Technology, which is one of the alpha pick stocks.

11:57You can see it's down 7 % today. So definitely taking a hit. Stock over the last year is up 320%. So coming off 7 % may not seem like a lot, but the stock is a quant strong buy. and I'm taking advantage of this weakness when we can. Looking at the factor grades, and when you look at the factor grades, it's relative to the sector. So it sort of provides an instant characterization of where it is versus the sector. This is in the IT sector and the industry of semiconductors. So the valuation at C plus is fair versus the rest of the sector. A little bit more expensive than it was six months ago, but the growth is incredibly strong.

12:37So when I click on growth, indeed a straight A report card, We're looking at forward revenue growth of 57%. We're looking at bottom line growth. EPS diluted forward growth is 225%. So just incredible growth there with a fair evaluation. And actually, if we clicked on evaluation, we'll probably see that the PEG ratio, which actually combines PE and growth, is an A. And the multiple is 0.19 versus the sector at 0.95. So on a peg basis, it's at almost an 80 % discount to the sector. So that valuation framework looks great to me. Other stock that you mentioned, was it Celestica? Credo. Oh, Credo. Okay, let's pull that one up.

13:22Okay, so Credo is down 14.6 % today. That is really getting crushed. I just bought it in the afternoon hours. So it was down about 14%. I wish I bought it earlier in the day. It was down in excess of about 20%. Really like, we'd look at it. Let's see. um this is like i should have been buying it at 11 a.m what it should have kind of was that around 92 dollars um but quite satisfied to add it here that says quant strong buy and look at the valuation on the stock now the valuation grade is a b so again uh that instant characterization showing it versus the sector it's actually a attractive compared to the sector but six months ago it was an F grade.

14:03So the valuation is far superior now compared to where it was six months ago. And the stock is actually down 21 % in the last six months. That's why we've seen that improvement. But look at the growth on this. It's an A plus for growth versus the sector. Ford revenue growth rate is 113 % versus the sector at 10%. And if we look at the EPS Ford growth rate, 264 % versus the sector at only 14%. So this is incredibly attractive in terms of growth. And in regards to valuation, you are seeing a lot of red there with some of the conventional metrics, but that peg ratio at 0.47 versus the sector at 1.38 puts it at a 65 % discount to the sector.

14:49So that is really dirt cheap. But really that one metric is lifting all the other metrics because it's such an outlier. So being that it's that kind of an outlier and we have more of a weight put on that particular metric, it's bringing the overall grade up to a B. So that might not seem intuitive. When we look at these metrics and they're part of our algo, they actually are not equal weighted. The weights that are more predictive have a heavier weight. PEG has a heavier weight. Hence, it brings up the rest of the grades there. So yeah, I believe that these are really good opportunities. And again, we're in an environment that's quite uncertain right now.

15:26the uncertainty could continue for the next couple of weeks and months. But I think with some of these stocks that have really come off sharply and have great fundamentals I've highlighted, really nice time to pick up some of the shares. I want to take us back to our presentation, recommending a barbell approach here to many of our investors. So I'm saying the environment could continue to be uncertain. To sort of dampen that uncertainty, it's probably wise to get rid of some really speculative positions, companies that lack earnings, companies that don't have a solid fundamental outlook. It's probably wise to really shed those stocks and focus on the barbell approach where you're getting stocks that provide a dividend and provide you some downside protection, especially in light of inflation and geopolitical events.

16:14But as I mentioned, at the same time, you want to pick up shares that have strong fundamentals. So I'm focusing, particularly myself, on those companies that I believe have very strong fundamentals where there's a buying and opportunity. In terms of most investors, typically, if you are at a risk stage where you're looking for capital preservation and income generation, it's very wise to focus on the dividend stocks that we have. We have a grading system just on dividends. We have a dividend safety grade and a dividend growth grade. It's really proprietary to Seeking Alpha. There are no other vendors that have it.

16:49We created it here. So it gives you the confidence that when you pick up these dividend stocks, we have back-tested metrics, and we know which metrics tend to help provide safety for these companies. And typically, if you buy a stock that has a dividend safety grade of B minus or higher, there's a 98 % probability historically that they would not have cut their dividend. So it's sort of a proven track record. In terms of myself, I don't focus on dividend stocks that much. Again, your risk tolerance, if you focus on capital preservation and income generation, it's important. So I like to focus on stocks that have capital appreciation.

17:31So that's just my particular risk tolerance style. So bringing us into sort of this, not only the inflationary event, but the military event. And I heard someone quoting John Krasinski earlier saying that when the missiles fly, it's time to buy. And I think this table from LCL Financial, and I was looking at like 25 military events that occurred since 1950. And the median return for 12 months after was right, it was about 11%. And that's actually a really good return for the market going back this long. And I will say, for some of these periods where the market was down 12 months after, in 2001 when we had the US invasion of Afghanistan, that was also the tech bubble that had burst at that point.

18:19So there are some other factors that were impacting the market outside of war then. And then when we look sort of at the Russian invasion, we were still in a really tough environment from the tech bubble. Matter of fact, the tech stocks really got crushed between 2001 and 2022, 2023. When you look at other periods in 2008, when the market was down 12 months afterwards by 22%, we have the great financial crisis that occurred. So for those particular periods, and that was when Russia invaded Georgia, there were really outside factors from the military events that led the market to be down so much.

19:00When you strip those out, for the most part, these numbers would actually be much higher. So I hate to say it when John Krasinski and his statement of when missiles fly, it's time to buy. There is a track record for that. But of course, we're all very closely related. We have many colleagues that work in Israel and Ukraine and the Middle East. So we are definitely impacted. And a lot of the hours that I spent over the weekend watching TV was more so out of concern for friends and work colleagues. but you know get to monday morning and i have a job that job is to present data and stocks so in the context of that you know history is important uh what i wanted to highlight here was a seeking alpha study that we actually performed last year during this time uh and as i mentioned it's like deja vu last year during this time as i mentioned earlier we had a deep seat and we had tariffs and the market between January and March had actually come off by about 15%.

20:02So what we did is we looked at the last five corrections since 2010, when the market declined by 15 % or more, and we sort of drew a line in the sand and we said, okay, when the market pulls back 15%, if we use that as the time to buy the S &P 500, what would happen if we held onto it for two years. And what we found is by using that particular point down 15%, if you held on to the, say you bought an ETF, you would have been up 50 % on average two years later. More importantly, if you purchased our quant strong buys at that same time that the market was down 15%, the quant strong buys over the following two years were up 117%.

20:49it. So again, sort of just demonstrating a lot of people panic, a lot of people get nervous in these type of environments. And you can see there's a lot of selling going on today. And my guidance is to stay calm, carry on and use this to your advantage. The name of the game never changes. It's buy low and sell high. And that's the type of market that we're running into. And that doesn't mean you go out today, you know, with the markets being weak and, you know, take all your cash and put it into stocks that are lower. This could continue for the next couple of weeks or months. So approach it wisely.

21:27Don't put all your cash into stocks at this point. Just sort of do it at a measured pace. And that's part of what I did today myself, at a measured pace. This is the beginning. Over the next couple of weeks, I might be putting more cash to work into some of these stocks that I like. But certainly our quant strong buys, I will say in the beginning, in environments like this, the market's down 15%. Some of our quant strong buys will be down 20%, 25%, 30%, 40%. And the reason being is people sell the stocks where they've made money. It's more about the rotation into the safe haven sectors and asset classes, and they sell what they can.

22:06They sell where they've made money. And that's why stocks with good fundamentals tend to sell off so much during the initial corrective phases. And that's where the opportunity is. So on that note, we're talking about dividend stocks. Part of that barbell approach, we've already talked about some of the stocks that have good fundamentals that I've been adding to. But on the other side of the barbell is to sort of help dampen the uncertainty and focus on names that have solid dividends. How did I find these stocks? Siki Alpha has a screener. And within that screener, you'll see we have everything from dividend screens to technology screens, to value screens, growth screens.

22:45You can create your own screens. So we have a pre-baked one for the dividends. And I simply clicked on that. And that was able to identify some of the top dividend stocks for me. And what we did today is we actually selected three REITs. And we do have a strong track record, not only with our QuantStrong buys, but also with our REITs. So I wanted to show, So going back to January of 2017, what the performance is, if we were simply to look at our quant strong buys for REITs, and we rebalance this every single day. So if the strong buy rating were to drop, it would be dropped from the portfolio.

23:23And this isn't a product that we have. So I don't want to mislead anybody. It's not an ETF. It's not a managed product. It's simply, I'm putting this forward to show you the performance based on the investment characteristics and the strategy that we use to identify our strong buys and what that track record is. The REIT strong buys are up 191 % versus one of the top REITs, the XLRE ETF, which is up 84 % for the same period. We wanted to use one of the largest diversified ETF REITs that was out there for comparison. And so we use that as our benchmark. We have a return that is far greater than that since 2017.

24:04And one period where it did get hurt, probably more so than the ETF, was during the pandemic. But really just following the pandemic, the REITs that we had strong buys on, really pre-pandemic and post-pandemic, it started to skyrocket. The only area of weakness was actually during the pandemic itself. But for the most part, our REIT performance is absolutely stellar compared to the benchmark. Continuing with the presentation, these are the three REITs that I'm focusing on today. And I see I have Getty here. So we're going to get into what we like here at Getty. It has a market cap of 1.96 billion.

24:40This is a retail REIT. And within our REITs overall that we measure, it ranks eight out of 170. But out of retail REITs, it actually ranks one out of 24. They're one of the largest owners of freestanding convenience properties, automobile retail properties, car wash properties as well. They have over 1 ,174 properties and they've had 27 consecutive years of dividend payments and 13 consecutive years of dividend growth. Some of the valuation grades look fantastic. They're coming at B. Growth looks terrific for the company. It's A minus. Profitability is at A minus. Momentum is very strong versus the other REITs at B plus and the revisions, which we look at actually FFO revisions, A plus compared to six months ago where it was D minus.

25:31So analysts increasingly really liking Getty at this level. And if I want to go to our platform, put in GTY, the stock has done okay over the last year. It's a REIT 6%, but you have that forward yield of 5.86%. So that actually does make a nice return. year to date, it's up 21%. So a lot of investors getting into REITs sort of in this inflationary period. And you can see the price over FFO forward is at 13 times. So it's very attractive. In fact, when you look at REITs, they actually have many different metrics than most stocks do. So we do show you what the PE would be because they do have earnings.

26:14But more importantly, for REITs, we look at AFFO and FFO. That's really the conventional metric that people tend to look at REITs. For the forward price to AFFO, it's currently at 13.2 times versus the REIT asset class at 15.81. So that's about a 16 % discount to the group. The dividend safety grade at C, the dividend growth grade at B, yield at B plus, and consistency at A plus. Again, ranking number one out of 24 within its industry. And we're going to go to stock number two, ticker symbol WPC. This has a fairly large market cap for REIT at 16 billion. This is a diversified REIT. So within the overall ranking of REITs, it's seven out of 170.

27:05But within the diversified REITs, it's two out of 12. It's one of the largest net lease REITs in the US and Europe. They focus on mission critical assets like warehouses, which are essential to tenants. And through portfolio diversification and record investment activity in 2025, WPC has capitalized on rent escalations, moving and rising real estate. You can see the valuation is C plus, so pretty much unchanged from where it was six months ago. The growth is not as strong as Getty. Growth is C minus, has improved slightly from where it was six months ago, but profitability is very strong. momentum is strong because it's in the right place at the right time so it's outperforming most other REITs as you can see with that b plus grade most importantly analysts are taking their estimates up for the company now versus other REITs it's an a plus so that means the revisions are very attractive that's the actual quantity of analysts that are lifting their estimates compared to six months ago where it was a d minus so definitely that picture is improving and probably as that improves, we'll see growth improve for the company as well.

28:16And REIT number three is Alpine Income Property Trust, ticker symbol PINE. This is a much smaller REIT with a market cap of only 320 million, but it does rank number five out of 170 for all REITs. And within the segment, which is diversified REITs, this is the number one REIT in our diversified REITs. And I actually wrote about this in a January article for top dividend stocks for uncertain times. And since that point, it's up about 13.5%. So it has seen some good price action in terms of the price. They've actually raised their dividend by 5.3 % since the fourth quarter. You might not be familiar with the name Alpine Income Property Trust, but you will be familiar with the properties that they own and tends to be companies like Lowe's and Dick's Sporting Goods and Walgreens.