There's an old axiom on Wall Street that includes a reference to buying when others are fearful. That's easier said than done, of course, but two stocks that seem to fit the bill today are UDR(NYSE: UDR) and Toronto-Dominion Bank(NYSE: TD).
Here's a quick look at each and why you might want to put $1,000 into these stocks right now.
1. UDR is a victim of the apartment market's success
Most property markets go through cycles like this: Supply is low so rental rates rise, new construction comes in to take advantage of high prices, excess supply pressures rental rates, and construction dries up, leading right back to low supply. It is a fairly predictable cycle, complicated by the fact that building properties generally take a long time. As an apartment landlord, real estate investment trust (REIT) UDR is most concerned with multi-tenant residential properties. Looking at the cycle outlined above, new supply is starting to push rental prices lower.
Image source: Getty Images.
That's bad news, and it will linger for at least another year given the construction lag, but new construction beyond that is likely to start to fall. That said, UDR still had to lower its full-year 2023 guidance when it reported third-quarter earnings. Investors don't like that sort of thing, as you might expect, and the shares are now more than a third below their 2022 peak. The dividend yield is 4.3%, near its highest levels over the past decade.
But there's a lot to like about UDR's business. For starters, there's no reason to believe it will be unable to muddle through this property cycle given that it has muddled through many such cycles before. It is also one of the most diversified apartment landlords you can buy, with properties spread across the United States in both urban and suburban markets, and in both high-end and mid-level assets. Oh, and everyone needs a place to live, so the demand for apartments isn't going away. If you have $1,000, you should consider putting some of it into UDR.
2. Toronto-Dominion has stumbled, but it hasn't fallen
Shifting gears into banking, Toronto-Dominion Bank (aka TD Bank) hasn't been hitting on all cylinders of late. Rising interest rates have put pressure on the banking business. That's an industry-wide issue in banking, as higher interest costs can lead to a reduction in demand for key products (mortgages) and an increase in non-payment of loans. TD Bank has been through cycles like this before, though, so there's no reason to expect it to fail miserably this time around.
However, the bank recently had to scuttle a deal to buy a smaller rival in the United States. That happened because regulators were concerned about TD Bank's anti-money laundering practices. There's likely to be a fine, and TD Bank will have to regain regulator trust before it will be allowed to grow via acquisition in the U.S. market again. That's a self-inflicted wound. The stock is down around 30% from recent highs.
That said, the dividend yield is an attractive 5% or so, which is near the high end of the range over the past decade. And the company's financial position is quite strong, with a Tier 1 capital ratio -- a measure of a bank's ability to handle adversity -- that's the second best in North America. Yes, there are problems to deal with. But the problems are unlikely to derail the company or even its growth. Notably, it opened 18 new locations in the United States in the fiscal fourth quarter. If you can sit tight while TD Bank works through the industry's weak patch and its company-specific ills, you'll likely be well rewarded.
There are still opportunities even after the market rally
If you have $1,000 to invest but are worried that the market has gotten away from you after the big rally to end 2023, think again. You just have to be more selective. UDR and TD Bank are both well-run companies with long histories of success behind them. Yes, the problems they face will take some time to resolve, but it is highly likely they will be resolved and the stocks will return to favor on Wall Street. Don't be afraid to buy today, collect their dividends, and wait for better days.
Should you invest $1,000 in Toronto-Dominion Bank right now?
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Reuben Gregg Brewer has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
