Being able to withstand a market crash is no easy feat. Volatile economic conditions can sway consumer confidence and push the values of even the best companies low. But those moments are often the best opportunities to snag up shares in high-quality stocks that will bounce back quickly because of their business model.
The most recent stock market crash in March 2020 was chock full of market crash-ready stocks. Amazon, for example, rebounded aggressively as e-commerce demand went through the roof as a result of the pandemic. Food companies and grocery stores also did exceptionally well, rallying in under a month because the nature of their businesses helped them soar despite tough times. Today's market crash-ready REIT stocks that stand out are Public Storage (PSA 0.20%) and Digital Realty Trust (DLR -1.45%). Here's a closer look at what makes these REITs attractive.
Image source: Getty Images.
Public Storage
Public Storage is the largest self-storage REIT globally, owning 2,700 properties across 39 U.S. states and interest in 247 facilities in Western Europe. Overdevelopment in the self-storage sector caused pre-pandemic returns for self-storage to stall. But the pandemic helped fuel new demand for self-storage as people relocated and downsized. Since 2019, Public Storage has grown its portfolio by 22%, deploying a record $7.1 billion into new acquisitions and developments. At the end of 2021, Public Storage completed the $1.5 billion acquisition of All Storage, which added 56 properties to its portfolio.
But its rapid expansion isn't necessarily what makes it market crash-ready. It's the company's business model. Self-storage thrives during economic uncertainty, meaning a market crash likely would drive business, not hurt it. Public Storage is also in a strong financial position having a low debt-to-EBITDA ratio of just 3.9x, which is far better than its competitors in the self-storage REIT space. Over the past ten years, including the Great Recession and the most recent market correction in March 2020, Public Storage has achieved a 14% annualized total return for investors, which is just 1% shy of the S&P 500 during this same period. Some may find it difficult to appreciate this, but it needs to be emphasized that the major part of the last decade saw a booming stock market growth, fueled by a low-interest rate environment. That, however, may not hold as interest rates move north in the years to come. Given its dominance, financial stability, and growth prospects within this sector, there's a strong chance Public Storage would outperform if the market turned.
Image source: Getty Images.
Digital Realty Trust
Digital Realty Trust specializes in the development and management of over 280 data storage facilities across 25 countries. Data center facilities play an increasingly important role in our digital society, storing, organizing, and protecting data for nearly every sector of our economy, including social media platforms, fintech companies, manufacturers, universities, and corporations, among many others.
Data storage demand, like self-storage, saw a spike after the onset of the pandemic. As people stayed and worked from home, data consumption increased. Given today's continued volatility as omicron and other coronavirus variants make their appearance, data consumption demand would likely increase in a market crash. Not to mention, alternative drives like e-commerce, autonomous vehicles, and other AI services are also driving demand for data storage.
The company isn't in as strong of a financial position as Public Storage, with a debt-to-EBITDA ratio of 5.6x, but its growth prospects are strong. Digital Realty Trust just announced the acquisition of Teraco, a data storage operator in South Africa, which will help increase the company's presence in Africa while adding seven existing facilities and three expansion opportunities to its portfolio.
Both of these REITs operate in strong sectors within the real estate industry that will surely benefit from an economic recession or market crash. Given their high-quality portfolios, they are great buys for patient investors before or after a market crash.
