Value stocks are my favorites, because they are stocks that will traditionally outperform the broader market. That’s because they are trading at prices that are not reflective of their intrinsic values. When they do, you often will make more money because you first claw back the portion that’s undervalued, then you get a return based on its growth rate.
So if you can find such securities, you should pay attention to them. I follow a lot of stocks and see this occur from time to time. That situation exists now with Ashford Hospitality Trust (NYSE: AHT) and also its Series D 8.45%-yielding Preferred stock.
Ashford rarely gets market respect for its intrinsic value. It tends to trade below fair value a lot of the time, then suddenly the market discovers it and bids it up. It should, because it is a terrific REIT with extremely experienced management. The company has 30 years’ experience in hospitality.
Ashford’s Strong Operations
Management has great creditor relationships and is often setting up new credit facilities, renegotiating maturities, using swaps to hedge against interest rate changes, and always maintains high levels of liquidity. All of its debt is tied to individual hotel properties so no actual company cash is at risk.
Somehow, the market eats up bad news first and doesn’t pay attention to all the good news. I see nothing fundamentally wrong with Ashford’s operations. I’ve followed it since it went with its IPO in 2003, and things are humming along. There are no red flags anywhere, and the balance and P&L sheets look stellar.
So why is the stock is trading at $5.10, which – adjusted for splits and spinoffs –is actually below its initial IPO price? Perhaps the market sees a recession, but other hotel REITs are not selling off like Ashford has.
I have no idea, except that this is an inefficient pricing by the market and that creates opportunity. As mentioned, the balance sheet and cash flow are stellar, so its $0.48 annual dividend is totally sustainable. That means its present yield is an insane 9.9%.
Ashford stock is worth north of $11 per share, based on its cap rate and other metrics.
Ashford Preferred D Stock
Alternatively, you could buy up the Preferred D stock. With par being $25 per share, and the stock trading above $26 at one, point, we have a fantastic bargain with it at $21. Once again, none of the other hotel REITs have preferred stocks that are under pressure. Given that Ashford’s preferred dividends never even got cut during the financial crisis, whereas almost every other REIT had to cut their preferred dividend, this makes no sense.
So I see the Preferred D undervalued by 18%, plus it yields 10% at its present price.
It is certainly possible that these stocks decline from here. I will add more to my pile if that happens. Given the trouble the entire market is in, I see all forms of Ashford stock as a value. Most of the go-go momentum stocks are insanely overvalued, yet Ashford is that rare undervalued play that may get taken down further with the market for no good reason.
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