5 REITs To Avoid On Fed Rate Hike

What could be more perfect for the Federal Reserve than to finish this year with the entire spotlight on it? The 2-day long FOMC meeting, the last one in 2015, which is scheduled to wrap up on Wednesday, is widely expected to come up with a rate hike announcement, the first one since 2006.

Fed Chairwoman Janet Yellen has almost pre-committed to the hike by suggesting that the two requirements – improvement in labor market and an increase in inflation – for the rate hike have already been achieved.

And for the data-dependent Fed, the inflow of economic data, right from employment to the ‘control group’ retail numbers, brought further assurance of economic growth and the strength to absorb a modest rate hike.

Growth in wage and gains in the broader labor market has also led to a rise in buying power and healthy spending trends. But the latest worries surrounding the junk bond market, the oil price decline amid decelerating global economic growth and stronger dollar can spoil sport.

Nevertheless, the market has now learned to look beyond the rate hike and the Fed is widely anticipated to reaffirm its gradual and deliberate approach to future rate increases.

Stocks That Can Harm Your Portfolio

However, a rate hike might not usher in good news for the heavy debt-dependent sectors like the utilities and real estate investment trusts (REITs). A rate hike would essentially imply more borrowing costs for them. This class of securities has high dividend payers whose yields become less attractive when the rate of interest increases.

Of course, a number of them have the potential to digest the near-term hiccup, thanks to their fundamental strength and capacity to cash in on economic growth. Yet, tiding over the challenges may not be as easy for some.

As a result, dumping the likely underperformers would be strategically sound for maximum portfolio returns when the rates are raised. To find out the weaker ones, we have applied the Zacks methodology to track stocks that have not only seen a dip in share price but have also an unfavorable outlook from analysts, as evident from their falling estimates.

Here are the toxic stocks that need your attention now:

Ashford Hospitality Prime, Inc. (AHP - Snapshot Report)

The stock has seen some pretty dismal trading lately, as the share price has dropped 8.13% in the past 4 weeks. Moreover, this Dallas-based hotel REIT has seen negative earnings estimate revisions with the Zacks Consensus Estimate for 2015 decreasing from $1.69 to $1.58 and the same for 2016 falling from $1.95 to $1.87 over the past 60 days. A Zacks Rank #5 (Strong Sell) further confirms its weakness.  

Resource Capital Corp. (RSO - Snapshot Report)

New York-based mortgage REIT Resource Capital has also witnessed a 9.46% plunge in share price in the past 4 weeks. Its estimate revisions also portray a negative trend with the 2015 Zacks Consensus Estimate declining from $2.63 to $2.25 and the same for 2016 falling from $2.70 to $2.44 over the past 60 days. The stock currently has a Zacks Rank #5.

FelCor Lodging Trust, Inc. (FCH - Snapshot Report)

This stock has plunged 14.81% in the past 4 weeks and its estimates too are moving south clearly reflecting the bearish sentiment of the analysts. In fact, the Zacks Consensus Estimate for this Irving, TX-based hotel REIT has dipped from 88 cents to 84 cents for 2015 and from $1.05 to 98 cents for 2016 over the past 60 days. Reflecting the inherent weakness, the stock currently has a Zacks Rank # 4 (Sell).

Starwood Waypoint Residential Trust (SWAY - Snapshot Report)

In past 4 weeks, this stock has seen an 8.61% decrease in its share price. Moreover, for this residential REIT that is headquartered in Oakland, CA, the estimate revision trends have been adverse too. Over the past 60 days, the Zacks Consensus Estimate for 2015 has moved from $1.59 to $1.55 while the same for 2016 has declined from $1.49 to $1.39. The stock currently has a Zacks Rank # 4.

LaSalle Hotel Properties (LHO - Snapshot Report)

In the past 4 weeks, this stock has also been battered and it reported a 12.58% decline in its share price. Estimates revisions also show up a negative trend for this Bethesda, MD-based Hotel REIT with the Zacks Consensus Estimate falling over the past 2 months from $2.90 to $2.84 for 2015 and from $3.21 to $3.14 for 2016. The stock currently has a Zacks Rank #4. 

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