There aren’t a tonne of Canadian stocks trading cheaply in this market environment, let alone high-quality Canadian stocks you can buy at a level that hasn’t been this cheap in years.
But that’s exactly the case with Canadian Apartment Properties REIT (TSX: CAR.UN), or CAPREIT, as it’s known, the largest residential real estate stock in Canada.
Despite being one of the best ways that Canadian investors can gain exposure to the housing market, and despite the fact that it’s a reliable dividend stock that consistently generates significant cash flow from its portfolio of roughly 44,000 units across Canada, the valuation in recent months has quietly fallen to levels investors simply have not seen in more than a decade.
So, if you’ve got cash on the sidelines and you’ve been looking for a reliable Canadian stock you can buy at a compelling discount today, here’s why it’s time to buy CAPREIT.
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A high-quality REIT trading at a rare discount
CAPREIT’s valuation is the main reason the stock will likely be on investors’ radar today. However, the real reason it’s worth investing in, in general, are its reliable and defensive operations.
CAPREIT is reliable because it owns and operates a diversified portfolio of residential units across Canada, one of the most defensive real estate segments available. People need a place to live regardless of interest rates, economic cycles, or market sentiment.
Despite its consistent resilience, though, the stock has been heavily pressured over the past couple of years as higher interest rates weighed on real estate valuations across the board.
And that pressure has caused CAPREIT to be trading below $40, and just off its 52-week low. At this price, CAPREIT is trading at a forward price-to-funds-from-operation (P/FFO) ratio of just 14.9 times.
So, besides the last few weeks when CAPREIT traded as low as $35 per share, this is the cheapest the REIT has been in over a decade.
In fact, its 10-year average forward P/FFO ratio is 19.9 times, considerably higher than its valuation today.
Furthermore, the stock currently offers a forward yield of roughly 4%, which is considerably higher than its 10-year average forward yield of 3.3%, showing why it’s one of the best stocks you can buy in the current environment.
Why valuation matters so much right now
In the current market environment where many stocks are trading at or above fair value, it’s hard to find a stock of this quality that’s trading this cheaply.
REITs, especially reliable high-quality residential REITs, shouldn’t trade at bargain-basement multiples forever.
Furthermore, when you buy a stock like CAPREIT at a compressed valuation, you lock in a higher yield on cost, and you set yourself up for higher returns not only as it eventually recovers to fair value, but as it continues to grow for years to come. Plus, because of its reliable dividend, CAPREIT is still paying investors to wait.
So, if you’ve got cash you’re looking to put to work in the current environment, there’s no question CAPREIT is one of the best stocks to buy now, while you can still take advantage of its compelling valuation.
