It's a common misconception that when a stock you buy skyrockets, the smart thing to do is sell it (or at least sell some of it) to lock in your profits. But the context matters. If the stock has increased sharply because the business is performing exceptionally well, it could still be a bargain.
I have a few examples of stocks like this in my own portfolio. All three of these are up by 100% or more in just a few years but still look like attractive investment opportunities today.
A great environment for homebuilders
Dream Finders Homes(NYSE: DFH) went public in 2021, and I started buying shares soon after. But I aggressively added to my position when the real estate market slowed to a crawl in late 2022 and the stock plunged. Today, my overall Dream Finders investment is up by 110% from what I paid.
What's the main reason for the stellar performance? While home sales slowed down, the market clearly favored new homes versus existing ones. Not only did homebuilders have the ability to produce more inventory at a time when existing home inventory was at a generational low, but they could offer incentives (especially when it came to financing) that existing home sellers can't, such as mortgage buydowns.
Dream Finders shattered its already ambitious home-closing expectations in 2023, with 7,314 closed home sales (the initial expectation was 6,000), and average sale prices rising by 7%. Due to slightly disappointing results in its first-quarter earnings report, however, Dream Finders dropped significantly and now trades for just 9.4 times forward earnings, giving investors an excellent long-term opportunity.
Group hotels are a great business
I first bought shares of Ryman Hospitality Properties(NYSE: RHP) in 2019 and watched them plunge as the COVID-19 pandemic began. I ended up roughly tripling my position near the lows, buying about two-thirds of my shares for about $14.50. From that point, Ryman has increased by 633%. However, considering my overall cost basis, I'm up about 125% on my Ryman investment, not including the dividends I've received along the way.
In short, Ryman specializes in group-focused hotels and events. It owns the five massive Gaylord hotels and several iconic entertainment assets. And the business is proving to be far more resilient in a post-pandemic world than many expected.
In the first quarter of 2024, Ryman's average daily rates (ADRs) at its same-store hotels were the highest they've ever been in a first quarter. Plus, Ryman's entertainment business is expanding rapidly. It just opened its flagship Ole Red location on the Las Vegas Strip and has a massive Nashville entertainment complex under development in partnership with country star Luke Combs.
Ryman trades for less than 15 times its expected 2024 funds from operations (FFO), despite the impressive performance and long-tailed growth potential.
Don't buy the "malls are dying" narrative
I added Simon Property Group(NYSE: SPG) to my portfolio in mid-2020 as an opportunistic play during the pandemic lockdowns. At the time, nobody knew when (or if) it would be safe to go to the mall again, and the stock's price reflected that uncertainty. About four years later, the stock is up by 127%, but I still think it's cheap.
In the most recent quarter, even with widespread fears of a slowdown in consumer spending, Simon's net operating income grew by about 4% year over year, and the occupancy in its malls grew by 110 basis points to 95.5%. The company gave shareholders a dividend increase for the second consecutive quarter, and it now yields about 5.4%. With shares trading for 11.7 times management's full-year FFO guidance, Simon looks like a tremendous value at the current price.
These could be volatile stocks but are solid businesses
These three stocks can be (and have been) rather volatile over the short term. But these are three excellent and well-run businesses trading for low valuations, and patient long-term investors may want to take a look.
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Matt Frankel has positions in Dream Finders Homes, Ryman Hospitality Properties, and Simon Property Group. The Motley Fool has positions in and recommends Dream Finders Homes. The Motley Fool recommends Ryman Hospitality Properties and Simon Property Group. The Motley Fool has a disclosure policy.
