Image source: Getty Images
I believe there are many quality cheap stocks due to the current market volatility. One stock I think investors should consider is The PRSR REIT (LSE: PRSR). This is why.
Properties to rent
PRS is a real estate investment trust (REIT). It buys houses from builders and then rents them to tenants to earn income. What I love about REITs is that they must return 90% of their profits to shareholders. This passive income opportunity is too good to ignore, which is why I already have positions in a few REITs.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice.
As I write, PRS shares are trading at 80p. This time last year they were trading at 86p, which is a fall of 7% over a 12-month period. Rising interest rates, as well as skyrocketing inflation, have put downward pressure on many stocks, hence the opportunity to pick up cheap stocks. The former has played a more important role for the PRS, but more on that shortly.
The bull and bear case
I think PRS stock has been under pressure recently due to rising interest rates. These higher rates have wreaked havoc on the UK property market. Due to these higher rates and rising inflation, housing construction output has slowed, which could hamper PRS’s growth aspirations. Furthermore, if the economy plunges into a full-blown recession, it could be disastrous for the business, at least in the short term.
On top of this, PRS’s long-term business model is threatened if interest and mortgage rates fall. This could help consumers buy their own homes much more easily than now, thus weakening demand for rental properties.
So, to the case of the bull. I believe PRS is in an excellent position to benefit from the current property market outlook. This is short and long term. This is for two reasons. First, there is no end in sight to higher interest rates. Rising rates make mortgages harder to obtain, so people look for more affordable rental accommodation. Next, housing demand is outpacing supply. The deficit could boost companies like PRS and also increase their performance and payouts.
Moving on, PRS is trading with a P/E ratio of 10, making it one of the cheap stocks that has caught my eye. In addition to this, a dividend yield of 5% is higher than the FTSE 100 average yield of 3.9%. However, I am aware that dividends are never guaranteed.
Cheap stocks for everyone
To conclude, I think PRS stock won’t stay at those levels for long. As demand for rental properties continues to rise, as well as a murky housing market and home construction output slows, the business should see its performance boosted. I hope the stock price starts to rise.
Personally, I’d be willing to buy some shares of PRS the next time I have some cash to invest. Passive income alone sounds attractive. Additionally, the overall outlook for the economy should help boost the business and its stock.
