3 familiar real estate stocks to buy after commission cut news

You may be among the millions of Americans celebrating the National Association of Realtors’ (NAR) decision to repeal the old business model of real estate transactions. The 6% commission structure, which attracted many to the real estate sales and marketing profession, is now gone.

While this development represents an industry-wide cleanup for millions of agents and their commission costs, it creates many opportunities for investors. While most intermediaries will now have less budget to work on marketing efforts, those already at the top will continue to gain market share. But it doesn’t end here.

Companies like the Zillow Group Inc. NASDAQ:Z it will now be the reference platform for these important intermediaries to sponsor their real estate adverts. This gives Zillow additional pricing power for its advertising services. Beyond that, the reduction in home-buying costs could spur new business, which is why mortgage originators like them Walker&Dunlop Inc. NYSE:WD can also get additional profits.

Another group of real estate stocks that will benefit are real estate investment trusts (REITs). Equity Lifestyle Properties Inc. New York Stock Exchange: ELS. These companies will see their net worth increase for two reasons. First, they will get more properties to manage. Second, they will collect rental income or simply participate in the financing of the new boom in residential demand to come.

The Buffett effect

After buying shares of construction names like D.R. Horton Inc. NYSE: DHI and others, Warren Buffett kicked off a wave of curious analysts examining real estate for additional trends and opportunities. While it’s too late to get into the housing names (they’ve recovered too hard), you can still get in on the sideways plays that will occur.

It turns out that the old Oracle was right again. According to Intercontinental Exchange Inc. NYSE: ICEMost mortgages held today have an average interest rate of 3.25%, so most homeowners do not intend to sell, especially now that mortgages are above 7%.

For the same reason, not many are willing to buy a house and take on such high financing rates. Additionally, the median home price is now $492,300. This average price increased by $107,700 from the average of $384,600 before the COVID-19 pandemic.

The only way out of this situation is to create more inventory, which could reduce pressure on house prices and mortgage rates. Buffett’s bet was correct; however, there is still a long way to go before the trend ends.

A full cycle portfolio is here

There has to be a reason why Jefferies Financial Group Inc. NYSE: JEF AND JP Morgan Chase & Co. New York Stock Exchange: JPM they recently got their analysts to upgrade Zillow stock. In March, Jefferies expects a valuation of up to $75 per share for the real estate platform, predicting a net upside of 53% from today’s prices.

Additionally, JP Morgan analysts maintained their January price targets of $65 per share, representing a 33% upside. Knowing what you know now, it should come as no surprise that the market is bidding for this stock as well.

Expecting earnings per share (EPS) growth of 35% over the next 12 months is reason enough to pay a higher valuation on Zillow. Because of this, its forward P/E ratio of 21x represents a 79% premium over the average real estate deal valuation of 11.7x.

The party only starts there, as the second step after marketing a property on Zillow is financing. Mortgage originator Walker & Dunlop is jumping on this bull bandwagon, especially after Barclays New York Stock Exchange: BCS bought $3.1 million worth of shares in February.

Analysts at Wedbush also see the surge coming, leading them to raise their price targets to $130 per share in February. To prove these valuation targets are correct, the stock would need to rally as much as 44% from today. By accepting these trends, the market also pays a higher price for this stock.

Expecting EPS growth of 30% this year, analysts are leading the stock to trade at an 80% premium to the mortgage industry’s average forward P/E valuation of 8.8x. Walker & Dunlop shares have risen to a forward P/E valuation of 16x on expected EPS growth despite a recent 22% decline.

Last but not least, Equity Lifestyle Properties falls into this cyclical portfolio. Barclays has decided to purchase this REIT for a maximum value of $9.9 million starting in February; meanwhile, the stock suffered a 12% decline in the latest quarter. Perhaps expecting the decline to reverse on this significant industry trend, markets are also seeing a higher ceiling.

Trading at a forward P/E of 21.2x puts Equity Lifestyle at a 40% premium to the average residential REIT valuation of 15.4x forward P/E. As the REIT acquires more properties in its portfolio and real estate prices continue to rise due to new demand, the market will be right to pay a higher price for it.

Before you consider Barclays, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Barclays wasn’t on the list.

While Barclays currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here