The S&P 500 is still within a few percentage points of its all-time high, but some stocks are still relatively cheap. Real estate investment trusts, or REITs, have underperformed the market for several years thanks to the interest rate environment. And some of the biggest financial technology (fintech) companies are trading for a fraction of their pandemic-era highs.
Realty Income(NYSE: O) and PayPal(NASDAQ: PYPL) are two stocks from these categories that look especially attractive right now. I already own both, but I plan to add more soon if the current prices persist.
An incredible business but a rate-sensitive one
Realty Income is one of the largest investments in my portfolio and has been a staple of my investment strategy for more than a decade. If you aren't familiar, Realty Income is a REIT that owns single-tenant properties. Of the roughly 15,500 properties in the portfolio, most are retail in nature, but there are also some industrial, gaming, and agricultural properties.
In a nutshell, this business was designed to produce steady cash flow and value creation over time. Management focuses on types of retail that aren't very recession-prone or vulnerable to e-commerce headwinds. And while many experts were calling for the death of brick-and-mortar retail about a decade ago, especially during the COVID-19 pandemic, it has proven surprisingly resilient. One recent report found that retailers have lower customer acquisition costs in-store, far fewer returns, and less fraud.
Without getting into an economics lesson, commercial real estate is highly sensitive to interest rates. That's why Realty Income has significantly underperformed the S&P 500 for the past couple of years. And it's no coincidence that most of the peaks in its 10-year stock chart have all taken place in low- or falling-rate environments.
Despite the recent headwinds, the long-term performance has been fantastic. Realty Income has produced annualized total returns of more than 14% since going public in 1994, and it has increased its dividend (currently a 5.8% yield) in every calendar quarter dating back to the 1990s.
2025 could be a pivotal year for this beaten-down fintech
PayPal was one of the biggest stock market gainers in the initial phase of the COVID-19 pandemic, as millions of people were forced to adopt e-commerce and electronic forms of transferring money. But it was also one of the market's worst decliners once the world started to normalize and growth fizzled out. Despite a solid rebound in 2024, PayPal is still more than 70% below its 2021 peak.
However, 2025 could be a breakout year for PayPal. The company replaced virtually its entire leadership team over the past year and a half or so, and the new team's initial focus was on efficiency. So far, this appears to be a big success -- PayPal grew revenue by a sluggish 6% year over year in the most recent quarter, but its earnings per share grew by 22%.
Management has also been hard at work on some big growth initiatives, but the key point to know is that they aren't reflected in any of the numbers yet. PayPal's Fastlane rapid checkout product and the PayPal Everywhere cashback debit campaign were just rolled out in the late third or early fourth quarter. The company's highly anticipated ad platform just launched in October. And an expanded partnership with Shopify is still very new.
The point is that PayPal is more profitable than ever, and if these initiatives start showing serious traction, it could result in much more upside for investors in 2025 and beyond.
No guarantee on the timing
To be clear, I own both stocks because I think they'll be excellent long-term investments, not just because I think they'll have an excellent year in 2025. It's entirely possible that the Federal Reserve won't cut interest rates this year, which would likely lead to muted performance from Realty Income, and that PayPal's growth initiatives will take longer than expected to produce results.
So, while I believe 2025 could be a very strong year for both businesses, I'm far more confident that my investment will be worth far more in a decade from now. But the path to get there might not be a smooth one. Invest accordingly.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $357,084!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,554!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $462,766!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
Matt Frankel has positions in PayPal, Realty Income, and Shopify and has the following options: short June 2025 $120 calls on Shopify. The Motley Fool has positions in and recommends PayPal, Realty Income, and Shopify. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.
