By Ian Salisbury

Real estate is one place to look for value in today's stock market, offering low price/earnings ratios and attractive yields.

Stocks in the industry have been hit hard over the past few years as rising interest rates have pushed up borrowing costs and put a damper on property values. They fell on Monday, sending the Real Estate Select Sector SPDR Fund down 1.2%. Over the past three years, the fund has returned 10%, compared with nearly 70% for the S&P 500 index as a whole.

But now, with the Federal Reserve set to start cutting interest rates later this month, the winds may be about to shift.

Real estate stocks look attractive compared with their peers. The Real Estate Select Sector SPDR Funds trades at 18 times the next 12 months' funds from operations, the industry's equivalent to earnings. That is well below the forward P/E of around 22 for the broad market.

It isn't hard to find real estate stocks with yields that handily beat the S&P 500's $1.1%. Most stocks in the industry are real estate investment trusts, or REITs, which are legally required to pay out 90% of their annual income to shareholders as dividends. The industry's average yield is 3.3%.

"With the Fed poised to ease monetary policy, we expect the real estate sector will benefit from lower interest rates as reduced borrowing costs will improve earnings and make their healthy dividend yields even more attractive," wrote Morningstar analyst David Sekera in a note last week.

Which real estate stocks offer the best bang for the buck? To help answer the question, Barron's screened for real estate stocks in the S&P 500 that yield at least 5%, and which are trading below their fair market values, according to Morningstar's proprietary metrics.

At least one stock on the list, Alexandria Real Estate Equities, was highlighted by Barron's earlier this year . We noted in late April that the REIT, which caters to the life sciences industry, looked solid despite the healthcare sector's travails. An incipient healthcare resurgence -- the sector is up 4% in the past month -- could be a bullish sign for the stock.

Here are the results of the screen.

Crown Castle / ticker: CCI

Market cap: $42 billion

Yield: 6.9%

Stock price: $96

Morningstar fair value estimate: $125

Healthpeak Properties / DOC

Market cap: $13 billion

Yield: 5.9%

Stock price: $18

Morningstar fair value estimate: $28

Realty Income Corp. / O making sure is that right?

Market cap: $54 billion

Yield: 5.9%

Stock price: $59

Morningstar fair value estimate: $75

VICI Properties / VICI

Market cap: $36 billion

Yield: 5.8%

Stock price: $36

Morningstar fair value estimate: $34

Alexandria Real Estate Equities / ARE

Yield: 5.3%

Market cap: $14 billion

Stock price: $103

Morningstar fair value estimate: $85

BXP Inc. / BXP

Market cap: $13 billion

Yield: 5.3%

Stock price: $91

Morningstar fair value estimate: $77

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 08, 2025 15:41 ET (19:41 GMT)

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