Financial markets have provided investors with information about how the United States economy is moving forward through price movements in various asset classes such as stocks, bonds and commodities. With gold hitting new all-time highs and bond yields rising, investors may be assuming that a single theme is taking over the behavior of various markets.
Even though it is a new asset class, this price action reinforces the theme of inflation, especially in other inflation-linked assets such as Bitcoin, which is considered to be outside the rest of the market. Why inflation? Because the Federal Reserve (Fed) has started cutting interest rates and has also said that it wants to start supporting the country’s labor market.
The problem is that the service sector is already filled with high levels of employment. In contrast, the manufacturing sector (as measured by the Manufacturing PMI) needs to catch up. For this reason, new inflation is likely to come from manufacturing companies in the market, and why stocks like Prolog Inc. New York Stock Exchange: PLD, Broadstone Net Lease Inc. New York Stock Exchange: BNLand even Old Dominion Freight Line Inc. NASDAQ: ODFL may become operational in the coming months.
Warehousing and logistics rally: markets track recovery momentum
The transportation sector, particularly trucking stocks, led price movements following the release of US presidential election results. This means that markets view the new policy as stimulating business activity and the need for transportation and storage of raw materials.
Prologis today
(As of 11/29/2024 ET)
- 52 week range
- $101.11
▼
$137.52
- Dividend yield
- 3.29%
- P/E ratio
- 35.27
- Target price
- $131.25
This is where Prologis stock becomes attractive. It offers a robust network of warehouses and logistics centers to support growing activity in the freight and transport sector. The stock is trading at 84% of its 52-week high, giving markets plenty of room for a decent pullback to previous highs.
Knowing Prologis’ role in this situation, Wall Street analysts now forecast the stock to hit a consensus price target of $131.25 per share, implying a net upside of 13.3% from today’s levels. However, some were poised to stand out from the crowd, most notably Scotiabank, after they reiterated their “outperform” rating on Prologis shares.
This time, the rating comes with a higher price target of $136 per share, which provides slightly more upside than the consensus estimate of 17.5% from today’s level. To support this growth potential, Wall Street is forecasting Prologis’ earnings per share (EPS) to rise to $1.50 over the next 12 months, or just under 50% of today’s earnings per share (EPS) of $1.08.
Broadstone Net Lease: Why Both Short Sellers and Institutional Buyers Are Considering It a Buy
Operating in the same verticals as Prologis as a real estate investment trust (REIT) owning primarily industrial properties, there is one difference that makes Broadstone Net Lease shares a buy with much greater upside potential than where they trade today.
Broadstone Net Lease Today
Broadstone Net Lease
(As of 11/29/2024 ET)
- 52 week range
- $14.20
▼
$19.15
- Dividend yield
- 6.62%
- P/E ratio
- 23.05
- Target price
- $18.20
Since this company has a market capitalization of $3.4 billion compared to Prologis’ $100 billion or more, investors can see more aggressive price movements on a percentage basis, and this is where the money is made. Short sellers realize that small companies will gain the most in this trend, so they start fleeing stocks.
Short interest in Broadstone Net Lease shares is down more than 8.9% over the past month, a clear sign of bearish capitulation in the face of all the bullish tailwinds that could head for the stock in the coming quarters. Some institutional buyers have caught on to the trend and decided to take action before it’s too late.
Allocators Geode Capital Management have decided to increase their Broadstone Net Lease holdings by 1.3% as of November 2024, bringing their net position to $156.8 million today. Investors may view the move as an additional bullish signal given that short sellers also closed their positions last month.
Why legacy Dominion Freight Line stock is worth its premium valuation today
Compared to the rest of the transportation sector, Old Dominion Freight Line stock’s price-to-earnings (P/E) ratio is 38.5x today, commanding a significant premium over the sector’s average valuation multiple of 18.9x today. Some may call it expensive and full of flaws, but in fact it’s the opposite.
Old Dominion Freight Line Today
Old Dominion Freight Line
(As of 4:24 p.m. ET)
- 52 week range
- $165.49
▼
$233.26
- Dividend yield
- 0.46%
- P/E ratio
- 39.36
- Target price
- $200.41
Markets tend to overpay for shares that are believed to have the potential to outperform the rest of the holding. In the case of Old Dominion Freight Line stock, several factors could influence this. Judging by the sentiment of Wall Street analysts, there is a possibility of new growth in shares.
That’s exactly what Citigroup believes after it raised its price target on Old Dominion Freight Line shares to $241 per share from its previous target of $201. To prove this new point correct, the stock would need to rise as much as 10% from where it is trading today.
However, this valuation may not reflect the potential growth and growth potential that the company may achieve in the coming months. The reason for the valuation premium will only become clear in hindsight, and by then it will be too late.
Before you consider Broadstone Net Lease, this is what you need to hear.
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