Maintaining Strong Buy Thesis For City Office
- Owning small-cap stocks creates volatility and one way for me to smooth out the instability is to reduce exposure to one company.
- That has been part of my strategy, to find the small-cap REITs that are not being recognized for their potential.
- I am beginning to see more clarity as it relates to CIO’s dividend safety.
Last year my Small-Cap REIT Portfolio was on fire, returning more than 22%, and I credit much of the success to the time spent on selecting the best unmined REIT gems. As my readers know, I spend a lot of time on research, filtering out over 125 REITs in an attempt to find a dozen or so small-cap REITs flying under the radar.
Currently I have 17 REITs in the Small-Cap REIT portfolio (I recently added UMH and UBA) and the only Strong Buy on the list is City Office REIT(NYSE:CIO). Over the last 30 days the Small-Cap REIT portfolio has returned 3.5%, with much of that growth powered by Ryman Hospitality (NYSE:RHP)+5.6% and Global Medical REIT (NYSEMKT:GMRE) +20.4%.
It’s important to maintain adequate diversification and that’s one of the primary reasons that I am increasing the number of REITs in the Small-Cap REIT portfolio. Owning small-cap stocks creates volatility and one way for me to smooth out the instability is to reduce exposure to one company.
Don’t get me wrong, I like owning one-hit wonders, but I guess I’m greedy, I like owning a diversified basket of them. That has been part of my strategy, to find the small-cap REITs that are not being recognized for their potential.
The lack of Wall Street coverage and investor interest can also result in shares remaining undervalued – especially in down markets – for extended periods of time. By “flying under the radar,” the small-cap REITs offer better potential for growth over the long term and due to the decreased institutional support, there’s a better chance that small caps will result in an underestimation of a company’s operational health and prospects.