MAA owns and develops residential apartment buildings with a focus on southern states. Shares of MAA performed well after the company reported fourth quarter earnings in early February.
MAA is a play on long-term population migration towards the U.S. sunbelt.
Shares have been held back by overbuilding that took place during the Covid era. The company expects this excess capacity will be largely absorbed this year, which will restore the company’s ability to achieve rental growth in line with historical patterns.
In addition to encouraging guidance on the supply/demand outlook, the decline in long-term interest rates benefited MAA and other Real Estate Investment Trusts (REITs), including VICI.
VICI reported solid fourth quarter earnings on February 20.
As a “triple net lease” landlord with high quality tenants, VICI’s cash flow profile is unusually stable. Yet the company is able to grow sustainably on a mid-single digit basis thanks to contractual inflation provisions and incremental acquisition/development activity.
With a 5%+ dividend, we view VICI as offering a compelling and relatively secure double digit return profile. Stabilizing or declining long-term interest rates should only lend support to this high yielding stock with moderate but steady growth prospects.
Like REITs, utility stocks tend to benefit with downward movements in long-term interest rates. WEC shares benefited from the trajectory of rates and positive shareholder reaction to its fourth quarter earnings earlier in the month.
We view WEC as a preferred electric utility play because of its geographic positioning in Wisconsin, a state with a relatively friendly regulator as well as attractive long-term growth prospects as an emerging technology/data center hub.
Texas Instruments (TXN) also performed relatively well in February, delivering a 6% total return over the course of the month.
On February 4, TXN held its annual Capital Management call with investors. TXN continues to make good progress as the company plots its return to strong free cash flow generation.
TXN’s business mix has shifted over time towards automotive and industrials (now approximately 70% of revenue). Technological advancements in these areas are driving greater demand for analog semiconductors, which TXN dominates.
Investors are now primarily focused on the company’s ability to achieve its medium-term free cash flow goals—and they are pleased with how things are going. But investors should also pay attention to longer term upside potential, given TXN’s positioning in very early stage markets like autonomous driving and robotics.
TXN disclosed on the call that it is now generating material revenue from data centers, for example. Data center business generated some $650 million of sales in 2024, driven by the AI boom.
TXN is not widely regarded as a true AI play and is not valued as one. TXN does not generate expensive AI Graphic Processing Units (GPUs) like NVDA. Instead, it is a market-leading producer of low-cost chips that enable AI-powered technologies to operate.
Technologies fueled by AI innovation will continue to make their way to market in the years and decades ahead, from self-driving cars to personal robots. TXN will inevitably be a key supplier for manufacturers of these products, just as it is now for producers of electric vehicles and industrial robots.
SRE is another utility stock that has a strong presence in Texas and California as well as Liquefied Natural Gas (LNG) assets. In contrast with WEC, SRE’s fourth quarter earnings results were not well-received in February, and the shares were punished for the earnings miss.
From a valuation perspective, the market reaction appears unduly harsh. The stock is now trading at an attractive discount relative to its peer group, with no apparent damage to its long-term growth drivers.
Across electric utilities, SRE’s Texas footprint is among the most attractive in the industry with superior “all of the above” demand growth expected to be driven by the residential, commercial, industrial and data center markets. The company’s investments in LNG offer long-term upside potential that is not currently captured in the share price.
As we highlighted last month, shares of alternative asset managers CG and BX have performed quite well in the context of the broader market momentum.
We interpret the pullback in February as a reflection of a negative shift in market sentiment, as opposed to any company-specific developments.
As a reminder, we added Prologis (PLD) to the portfolio in February. The shares are up approximately 6% since the addition, but we continue to see compelling value in the stock. The portfolio update from February 7 can be accessed here.
