A Quality Stock That Looks Discounted But…

Morguard Corporation (TSX:MRC) stock popped +3% yesterday, and it could be the start of an upward trend.

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Morguard Corporation (TSX:MRC) stock has delivered excellent long-term returns. In the last 15 years, the stock has delivered 15.8% per year on average. In the last 10 years, it has returned 15.3% per year. In the last five years, it has returned 6.7% per year — a lower return perhaps due to the recent dip.

Specifically, the stock is 12.6% lower than its 52-week high of $194 per share. It just popped +3% yesterday. So, it might be turning around. The big question is, “Is the stock cheap today?”


First, let’s take a look to see if it’s the kind of business you would like to own.

A business overview of Morguard

Morguard invests in real estate. It primarily acquires, develops, and owns multi-suite residential, commercial, and hotel properties. Morguard also offers real estate investment advice and management services to major institutional and private investors.

Morguard has $21.3 billion of assets under management (~63% is owned real estate assets, ~37% is managed real estate assets, and ~37% is managed equities and fixed income).

Morguard’s real estate portfolio and its hotel properties make up ~85% and ~6.4%, respectively, of its total assets. Its real estate portfolio is comprised of ~47% multi-suite residential properties, ~28% retail properties, ~23% office properties, and less than 2% of industrial properties.

Q1 results

Morguard just reported its first-quarter results on Tuesday. It generated $274.8 million of revenue, of which 74% was from its real estate properties, nearly 20% was from its hotel properties, and ~5.2% was from its management and advisory fees.

Here are some key metrics compared to the same period in 2017:

Q1 2017 Q1 2018 Change
Total revenue $270.9 million $274.8 million 1.4%
Net operating income $101.1 million $99.8 million (1.3%)
Fair value gain on real estate properties $48.4 million $65.3 million 34.9%
Funds from operations (FFO) $47.6 million $49.9 million 4.9%
FFO per share $3.99 $4.32 8.3%

Is Morguard a cheap stock?

The stock has historically traded at a discount. However, it currently trades at an even bigger discount to that historical level. It’s likely that higher interest rates have played a part in pulling down the stock. If the stock trades at its normal discount rate, it’ll have upside potential of up to 19% from the recent quotation of $169.50 per share.

Should you buy Morguard?

Morguard has quality management and a strong portfolio, and the stock has outperformed in the long run. Currently, the stock trades at a discount. So, it’s a good time to consider buying some shares.

However, investors should only buy Morguard if they have a very long investment horizon, because the stock is thinly traded, and you could get stuck with the stock if you can’t find a buyer when you want to sell. Yahoo Finance indicates Morguard has an average volume of 2,265!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned.

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