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5 REIT Stocks for Your Short-Term Watchlist

Andrea Kramer

Despite the ugly start to October for most stocks, one sector has stood out recently: real estate investment trusts (REITs). In fact, analysts at RBC recently outlined several reasons to like the sector, and named Annaly Capital Management (NYSE:NLY) as its top pick. Meanwhile, fellow REIT American Tower Corp (NYSE:AMT) stock could continue to outperform in October, if past is prologue, while a trio of REITs stocks -- Omega Healthcare Investors Inc (NYSE:OHI), HCP, Inc. (NYSE:HCP), and Digital Realty (NYSE:DLR) -- now top our (recently depleted) list of high-flying equities with options on sale.

Annaly Capital Named Top REIT at RBC

RBC initiated coverage of the mortgage REIT sector with a "constructive" outlook, citing several reasons, including a favorable housing market with still "very benign" mortgage delinquencies. The brokerage firm said the sector could also be attractive to investors looking to play defense, though it admits that the flattening yield curve could be a macro headwind. Nevertheless, RBC said Annaly Capital is its favorite stock in the sector, starting coverage of NLY with an "outperform" endorsement and a $10 price target.

NLY shares were last seen up 0.7% to trade at $8.60. However, from a longer-term perspective, the security has dropped more than 15% over the past year, with recent rebound attempts stalling at its 80-day and 120-day moving averages.

AMT Tends to Shine in October

While most stocks have started October with a thud, AMT is in the black. In fact, the equity was last seen 2.3% higher on the day, trading at $224.96. The shares have already advanced more than 40% in 2019, with pullbacks contained by their 80-day moving average, and more short-term upside could be in store, if recent history is any indicator.

Specifically, American Tower is one of only three eligible S&P 500 Index (SPX) stocks to boast a 100% win rate in October, per recent data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, AMT has averaged an October gain of roughly 5.3%. A similar gain from current levels would put the equity closer to its Sept. 5 all-time high of $242.

3 High-Flying Stocks With Options On Sale

Three more stocks outperforming the broader equities market so far this month are OHI, HCP, and DLR. As alluded to earlier, all three remain on our list of high stocks with attractively priced near-term options. In order to make the cut, stocks had to trade an average of at least a million shares per day, have a Schaeffer's Volatility Index (SVI) in the bottom fifth of its annual range, and be within 2% of a 52-week high. Considering the ugly start to the month, you can imagine the list has been sorely depleted this week. In simpler terms, now could be an opportune time to speculate on the outperforming REITs with near-term options.

What's more, higher highs could be in store for OHI, HCP, and DLR stocks, should short sellers hit the bricks. Short interest on OHI and HCP stocks represent nearly two weeks' worth of pent-up buying demand, at the equities' average daily trading volume. Meanwhile, it would take nearly three weeks to buy back the bearish bets on Digital Realty shares.