However, there are some companies that should do well regardless of what the economy or stock market does for the rest of 2023. Here are two in particular that could be worth a closer look for long-term investors right now.
1. Realty Income: An ultra-resilient dividend stock with room to grow
Property income (ISLAND -1.68%) is a real estate investment trust, or REIT, designed to produce steadily growing profits year after year, and it has nearly three decades of experience doing just that. Since listing on the NYSE in 1994, Realty Income has not only increased its dividend more than 100 times (without dividend cuts), but it has practical outcompeted S&P 500 in relation to the investors’ total return.
The secret sauce here is surprisingly simple: Realty Income acquires single-tenant properties that are net leased to top-quality tenants. Around 80% of its portfolio is occupied by retail tenants, but it also owns industrial, agricultural and gaming properties. And the vast majority of tenants are recession-resistant, not easily disrupted by e-commerce, or both.
Just to name a few examples, Walgreens is a top Realty Income tenant, selling products that people need no matter what the economy is doing. FedEx provides a service that needs a physical location. And Dollar General sells products at discounted prices that even the best e-commerce retailers can’t match.
Realty Income owns about 11,700 properties and is the largest net rental REIT in the market, but this is a multi-trillion dollar real estate market and there may still be plenty of room to grow.
2. Life Storage: Valuable real estate with an incredible cost structure
You might be surprised to hear it, but the hottest sub-sector of commercial real estate in the past few years has been self-storage. In short, when the COVID-19 pandemic hit, people needed to free up space in their homes to create office space and generally saw more value in cleaning up when they were at home more often. And while self-storage properties in most cases rent out space on a month-to-month basis, it becomes a significant, recurring expense for most people with high switching costs.
Life storage (LSI 0.92%) can be a good way to invest in this trend and it should hold up well in tough times. It recently reported 12% year-over-year revenue growth in its same-store portfolio despite the tough 2022 environment. And the REIT continues to make value-creating acquisitions.
Life Storage also has a fast-growing third-party property management business that creates a capital-light revenue stream. Not only did the company add 107 stores to its management roster in 2022, 32 of them were previously managed by its competitors, demonstrating the strength of Life Storage’s platform.
To be fair, it’s certainly possible that demand for self-storage properties could cool if the economy slips into recession later this year, as many experts predict. However, even if this happens, it is important to remember that self-storage operators have a very favorable cost structure with minimal staffing and maintenance requirements compared to other property types.
In fact, other stock REITs Public storage (PSA 0.28%) – which has recently expressed interest in buying Life Storage – has said its properties can break even at just 30% occupancy. Life Storage’s occupancy is well over 90%.
These companies should be fine in 2023 and beyond
To be clear, these two companies should do just fine in 2023, even if the economy slips into recession. However, it is entirely possible that their stock prices could be volatile in the short term, and if we see an unexpected level of economic weakness, that is exactly what I would expect.
But I’d think of any near-term weakness as an even more attractive opportunity to add shares of these excellent companies to hold for the long haul.
Matthew Frankel, CFP® holds positions in FedEx, Public Storage and Realty Income. The Motley Fool has positions in and recommends FedEx. The Motley Fool recommends Life Storage and Realty Income. The Motley Fool has a non-disclosure policy.