Performance in the real estate sector generally tracks the economic cycle. During periods of high growth and inflation, real estate investments usually post strong returns. However, during an economic bust, these investments tend to underperform. Currently, Highcroft Investments and Regional REIT are real estate companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. There’s a few ways you can determine how much a cyclical company is actually worth. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. The discrepancy between the price and value means investors have an opportunity to buy shares at a discount. Below are the stocks I believe are undervalued on all criteria, based on their latest financial data.

Highcroft Investments Plc (LSE:HCFT)

Highcroft Investments PLC is a Real Estate Investment Trust (REIT) holding property and equity investments. Highcroft Investments is headed by CEO Simon Gill. With the stock’s market cap sitting at GBP £49.35M, it comes under the small-cap stocks category

HCFT’s shares are now trading at -46% lower than its actual value of £17.68, at the market price of UK£9.55, based on its expected future cash flows. This discrepancy gives us a chance to invest in HCFT at a discount. In addition to this, HCFT’s PE ratio is trading at 7.22x compared to its REITs peer level of, 9.46x suggesting that relative to other stocks in the industry, you can buy HCFT for a cheaper price. HCFT is also strong in terms of its financial health, as near-term assets sufficiently cover liabilities in the near future as well as in the long run.

More detail on Highcroft Investments here.

Regional REIT Limited (LSE:RGL)

Regional REIT Limited (LSE: RGL) is a London Stock Exchange Main Market traded specialist real estate investment trust focused on office and industrial property interests in the principal regional locations of the United Kingdom outside of the M25 motorway. Regional REIT was founded in 2015 and with the company’s market cap sitting at GBP £372.82M, it falls under the small-cap group.

RGL’s shares are currently floating at around -42% less than its true value of £1.72, at a price of UK£1.00, according to my discounted cash flow model. The mismatch signals a potential chance to invest in RGL at a discounted price. In addition to this, RGL’s PE ratio is around 10.97x while its index peer level trades at, 17.25x suggesting that relative to other stocks in the industry, we can invest in RGL at a lower price. RGL is also strong in terms of its financial health, with current assets covering liabilities in the near term and over the long run.

More detail on Regional REIT here.

intu properties plc (LSE:INTU)

intu owns and manages some of the best shopping centres, in some of the strongest locations, in the UK and Spain. Established in 1980, and now led by CEO David Fischel, the company size now stands at 2,589 people and with the company’s market capitalisation at GBP £2.64B, we can put it in the mid-cap category.

INTU’s stock is now trading at -46% lower than its true level of £3.62, at a price tag of UK£1.97, based on its expected future cash flows. This difference in price and value gives us a chance to buy low. In addition to this, INTU’s PE ratio is currently around 12.2x compared to its index peer level of, 17.25x indicating that relative to its comparable company group, we can purchase INTU’s shares for cheaper. INTU also has a healthy balance sheet, as current assets can cover liabilities in the near term and over the long run.

Interested in intu properties? Find out more here.

For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.