Benzinga and Yahoo Finance LLC may earn commissions or revenue from certain articles through the links below.
When stock prices fluctuate, they can sometimes reach extremes, either overvalued or undervalued relative to their fair value. If prices rise too much, the stock can become “overbought” and the risk of profit-taking leading to a price correction becomes greater than the potential reward of further appreciation. However, when stocks fall too much, buyers step in and the potential for a price rebound becomes greater than the risk of a further decline.
Two useful measures of oversold stocks occur when the RSI is at 30 or less and the Stochastic Oscillator is at 20 or less. As the stock price improves, the emergence of these two indicators out of oversold territory confirms the likelihood of further gains.
Don’t miss:
Take a look at three real estate investment trusts (REITs) that, for various reasons, have recently suffered substantial losses and are now in technically oversold or near-oversold territory:
United Group Inc. (NYSE:UNIT) is a specialty REIT based in Little Rock, Arkansas. It acquires and builds mission-critical communications infrastructure in the form of fiber optics for data networks, copper, and coaxial broadband. It owns and operates 140,000 miles of fiber optic routes covering 320,000 commercial buildings with more than 28,600 customer connections in 300 metropolitan markets.
Most of its network is located in the Eastern and Midwestern regions of the United States. It is one of the top 10 fiber optic providers in the United States today, and fiber optic leasing generates the majority of its total revenue. Demand for data and therefore fiber optics has increased due to the advent of 5G networks and the growth of artificial intelligence (AI).
Trending: What if there was a new Jeff Bezos-backed fund offering a 7-9% target yield with monthly dividends? would you invest in it?
On May 3, Uniti Group announced a merger with Windstream Holdings II, LLC, in a deal that gives Uniti shareholders 62% and Windstream shareholders 38% of the outstanding equity of the combined companies. The deal made sense because Uniti is a national wholesale fiber network and Windstream, one of Uniti’s tenants, is a fiber-to-the-home company. When the merger is finalized in the second half of 2024 (subject to shareholder and regulatory approval), Uniti will have 217,000 kilometers of fiber optic lines in 47 states and revenue of 4 billions of dollars.
Uniti also announced plans to offer $300 million of 10.50% senior secured notes through its subsidiaries, with notes maturing in 2028. The proceeds could be used to finance the Windstream merger rather than tapping Uniti’s bridge loan facility.
Unfortunately, Wall Street was not happy with the merger proposal and Uniti shares began to sell off. Then, on May 6, Raymond James downgraded Uniti Group from Strong Buy to Outperform and lowered the price target from $8 to $6. Shares were trading near $5.75, but the downgrade and price decline triggered another selloff that took shares down to $2.57 by mid-June.
Uniti shares are now extremely oversold, with the 14-period RSI at 28.45 and the Full Stochastic at 20.61.
Peakstone Real Estate Trust (NYSE:PKST) is a real estate investment trust based in El Segundo, California, that owns a diversified portfolio of single-tenant office and industrial properties. Peakstone calls itself “America’s premier real estate owner” and, as of April, owned 67 properties comprising 16.6 million square feet across 22 states in high-growth markets. Ninety-six percent of its portfolio is leased with a weighted average lease term (WALT) of six years. Peakstone launched its IPO on April 13, 2023.
As a new REIT with many office properties, Peakstone’s stock has been extremely volatile since its IPO. Shares initially traded from $7.60 to $38.12, before recovering to $12 in November 2023. After a brief year-end rally to $21.42, shares have slowly declined throughout 2024 to a recent low of $10.77. Investors may have been disappointed that Peakstone sold four properties in the past year, as this hurts future revenue and funds from operations (FFO).
On May 9, Peakstone declared a quarterly dividend of $0.225 per share, consistent with its previous dividend. The current annualized dividend yield of $0.90 is 8.30%.
The full stochastic is now at 7:30 and the 14-period RSI is at 29.26, placing Peakstone Realty in an extremely oversold state.
Clipper Immobilier Inc. (NYSE:CLPR) is a small, self-managed, real estate investment trust (REIT) based in New York City. It was founded in 2017 and owns, manages and operates 11 multifamily residential and commercial properties.
On May 7, Clipper Realty reported its first quarter 2024 operating results. FFO of $0.14 per share exceeded the consensus estimate of $0.12 and represents an increase of 27.27% from the FFO of $0.11 in Q1 2023. However, revenue of $35.760 million was a bit lower than the estimate of $36.008 million. Nevertheless, Clipper improved its first quarter 2023 revenue by $33.667 million.
After Clipper Realty hit $5.38 in mid-December, the trend reversed, with shares recently hitting $3.47. Shares are now oversold with the full stochastic at 11.31. However, the 14-period RSI, which hit a low of 20 in April, has started to strengthen and has since climbed back to 36. This is known as a “bullish divergence” and often precedes a period of price appreciation.
Investors should keep in mind that an oversold condition does not guarantee a profitable purchase, it simply shows that the stock is now at a point where more buyers than sellers believe the stock is undervalued and may step in to buy shares.
Learn more about real estate investing:
This item Three Extremely Oversold REITs originally appeared on Benzinga.com
