XLU - City Developments: A Real Estate Powerhouse Under The Radar

2024-05-26 21:05:10 ET

Summary

• City Developments offers an attractive valuation despite market headwinds, with a significant discount to net asset value, and promising segments in hotel management and fund management.
• The company faces challenges, including a highly leveraged balance sheet, exposure to weak real estate markets like China and the UK, and higher financing costs due to rising interest rates.
• Despite these risks, City Developments has remained profitable and has a strong reputation and many quality assets, making it a potentially rewarding investment.

There are very few market sectors where we are finding good value investments, with the technology sector ( XLK ) particularly overvalued, and most others also looking fully valued on average. The exceptions we believe are real estate ( VNQ )( XLRE ) and the utilities sector ( XLU ), in particular renewable energy producers. Similarly, we are seeing more value outside the U.S., particularly when comparing with the mega caps in the S&P 500 index ( SP500 )( SPY ). It is true that some of the tech mega caps in the U.S. have very attractive competitive moats, but at this point we believe this is more than priced in the shares....

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