There are value stocks all over the FTSE, if you ask me. The reason for this is the economic turbulence of late caused by rising interest rates and soaring inflation. Geopolitical tensions around the globe haven’t helped either.
However, on the economic front, the Bank of England didn’t increase the base rate in its latest update and inflation figures have come down! I can’t help but feel we may be headed for greener pastures. I’m not saying the volatility is over, but there looks to be a tiny bit of light at the end of what is a very dark and long tunnel.
With this in mind, I’m trying to buy quality value stocks now, before the market rallies. One stock I’d buy when I next have some investable cash is LondonMetric Property (LSE: LMP). Here’s why!
Real estate investment trust (REIT)
LondonMetric is set up as a REIT. As a business, it invests in property assets and makes money from rental income. The type of property can vary. However, LondonMetric focuses on warehouse, logistics, and distribution properties. The allure of REITs for me is that they must return 90% of profits to shareholders.
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LondonMetric shares are in exactly the same position that they were last year, trading for 189p. The chart below shows perfectly how volatility has kept the shares stagnated due to the volatility mentioned.
The bull and bear case
From a bullish perspective, LondonMetric’s business model is one of the aspects that caught my attention. Focusing on distribution, warehousing, and logistics property is a smart move, if you ask me. This sector has been growing, and this growth is set to continue linked to the adoption and explosion of e-commerce. This could help LondonMetric boost performance, sentiment, and returns.
As a passive income seeker, LondonMetric’s dividend yield of 5.5% is extremely attractive, and higher than the FTSE 100 average of 3.8%. However, dividends are never guaranteed.
Finally, LondonMetric has a good track record of performance and a high occupancy rate for its properties. High occupancy can help with stable revenue generation, which underpin returns. I’m conscious that past performance is not a guarantee of the future.
From a bearish perspective, during times of higher interest rates, debt can be costlier to service. For many REITs or investment trusts, balance sheets are leveraged and a current debt position for the firm of £1bn could be precarious. I’ll keep an eye on performance and wider economic updates on this front.
Another issue is growth plans. In order to grow the business, LondonMetric will need to buy more assets but the property market is struggling and valuations are fluctuating. Borrowing could be higher and the business could overpay for an asset. These aspects could hurt performance and returns.
Final thoughts
As a long-term investor, I’m braced for shorter-term volatility. So while LondonMetric shares may come with challenges now, I reckon in the longer term the business, shares, performance, and returns will grow.
A big part of this for me is the sector it operates in and, as the economic picture brightens, I reckon LondonMetric shares will head upwards too.
