Insights

This Under-the-Radar Stock Could Be One of This Summer’s Hottest Buys

With the stock market tumbling, it may not feel like things are heating up for the summer season, but Sun Communities (NYSE: SUI), a real estate investment trust (REIT) that invests in mobile home communities, RV resorts, and marinas across Canada, the United States, and the United Kingdom, is still red hot.

Despite being down 27% this year, this under-the-radar stock could be one of the summer’s hottest buys. Here’s why.

RV mania isn’t slowing down

The coronavirus pandemic sparked an RV buying frenzy as people sought a safer way to travel. 2021 was a record year for the industry, with RV sales and deliveries up 47% from pre-pandemic levels. Cut to 2022, and many expected RV sales to slump as gas prices soar and international travel reopens, but it seems this iconic American pastime is here to stay.

As of April 2022, RV shipments are up 14.1% from last year’s already record-breaking year, which is great news for Sun Communities, which owns 192 RV and hybrid RV-marina resorts. Its first-quarter transient RV revenues were up 38.5% over last year, while Memorial Day, a holiday that often marks the start of the summer season, saw revenues grow 12.5% above 2021 levels. 

For RVers, the summer is doing anything but cooling off. Even if gas prices and recession concerns put pressure on RV travel, it’s unlikely that RV owners will ditch the RV altogether. A recent survey found that of the 700 respondents who owned an RV, only 3% said gas prices would influence them not to use their RV. The majority stated they would take fewer trips, while a smaller percentage said they would cut back elsewhere.

Occupancy levels and revenues should continue to grow for the company over the summer, but its revenue opportunities don’t end there. Sun Communities is actively focused on converting transient tenants to long-term tenants, which has historically increased revenues by 40% to 60% per site due to increased occupancy. As of April 2022, its transient conversions were in line with pre-pandemic levels. Plus, the company also has its core business to help boost its growth, which is booming.

Its core business is as strong as ever

Sun Communities earns around 48% of its total revenues from renting and selling homes in its 283 mobile home resort communities. Affordability is by far the biggest concern for housing today. Decade high inflation, rising mortgage rates, and an extremely competitive and expensive housing market make alternative housing solutions like mobile homes increasingly popular.

Same-property bookings, which include leasing non-transient spaces in its RV resorts and mobile home communities, are 4% ahead of last year for the second quarter of 2022 and 10% ahead of the first half of 2021. A positive sign that despite the traditional housing market losing steam, it’s still seeing strong demand and steady growth. Its occupancy levels remain at 96.7%, with 78% of its mobile home communities having an occupancy rate above 98%.

The company’s debt did increase after its acquisition of Park Holidays, the premier mobile home park and RV resort operator in the UK, at the start of 2022, which now sits at 5.9 times earnings before taxes, income, depreciation, and amortization (EBITDA). However, it’s still in a strong financial position and shows no signs of its higher debt hindering its forward momentum. It has five new mobile home park developments under construction and an expansion of 600 sites across existing properties, which will help it meet the growing demand for affordable housing.

Why it’s a smoking buy right now

When many companies are battling shrinking revenues and slower sales, Sun Communities’ strong performance offers investors some relief. And thanks to the bear market pushing share prices down 27% year to date, its historically conservative dividend yield is now over 2% while its pricing is more favorably valued at 23 times its funds from operations (FFO),a metric that works similar to the price-to-earnings (P/E) ratio for REITs.

I bought more shares of Sun Communities after the latest market dip, taking advantage of its favorable pricing and great exposure to these red-hot industries. While future market movement could push prices down further, its business model is still going strong.

Liz Brumer-Smith has positions in Sun Communities. The Motley Fool has positions in and recommends Sun Communities. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info