While the housing market remains in the doldrums, some real estate related stocks are not necessarily terrible investments these days. Investors just need to look outside the traditional housing industry. Whether it's a quality balance sheet, prudent management or a unique set of assets, not all businesses are the same.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

What to Avoid
A heavily indebted builder like Hovnanian (NYSE:HOV) or Beazer Homes (NYSE:BZH) is not an intelligent way to bet on a housing recovery. In the past five days, shares in HOV jumped around 35% on news about ways to fix the housing mess. Yet, with no tangible equity and debt of approximately $2 billion and $1.7 billion, HOV and BZH are nothing more than a speculative bet on housing. At times speculation can pay off big, but very few market participants are able to speculate profitably. It is not a coincidence that homebuilder NVR Corp (NYSE:NVR) with significantly less debt has actually been a decent investment to hold throughout the real estate crisis. In the past year, NVR shares were down about 5%, below the flat return for the S&P but outperforming all other homebuilders by a significant margin. Trading at around $706, NVR is not far off from its 52-week high of $804.32, whereas most other homebuilders are significantly down from any type of 52-week high price. (For related reading, see Will Corporate Debt Drag Your Stock Down?)

Better Options
While traditional housing related stocks may not be the best securities to own, some pockets of real estate look promising over the next few years. One in particular is Brookfield Office Properties (NYSE:BPO) is a high quality real estate management company. BPO owns and manage some of the world's most iconic real estate assets. Its portfolio is comprised of interests in the downtown areas of New York, Washington, D.C., Houston and Los Angeles, as well as major international cities including Toronto, Canada and Sydney. Some of Brookfield's landmark properties include the World Financial Center in Manhattan, Brookfield Place in Toronto and the Bank of America Plaza in Los Angeles. Shares trade for about $15, yield nearly 4% and trade at a P/E of less than 4. Over the past year, Brookfield has been selling some of its trophy assets at attractive prices and using the capital to take advantage of the incredible valuations in today's real estate market to providers of liquidity. (To learn more, read P/E Ratio.)

The Bottom Line
While no real estate related business is immune from the current anemic state of the industry, patient investors can find businesses that are opportunistically taking advantage of a depressed market. Those willing to have a little patience may not find all real estate related opportunities to be value destroying. (For additional reading, see Simple Ways To Invest In Real Estate.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  2. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  3. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  4. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  5. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  6. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  7. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  8. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  9. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  10. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center