After being frozen for nearly two years, the real estate market is starting to show signs of life. Listings are on the rise, indicating that homeowners may be ready to sell.
While mortgage rates are still near multi-year highs, the Federal Reserve is now starting to lower interest rates. Rates will start trending lower in time, and now may be the time for investors to bet on a real estate rebound.
That means that more home transactions are on the horizon, which bodes well for beaten-down real estate brokers. While on the smaller side, Douglas Elliman (DOUG) should benefit from that trend.
Douglas Elliman rose just 9% over the past year, far underperforming the overall stock market.
But even with a struggling real estate market, the brokerage managed to grow revenues by 6%. While losing money overall, a thawing real estate market can turn the earnings loss around.
Action to take: Douglas Elliman shares are undervalued relative to a potential revitalization in real estate in 2025. Shares have been trending higher since the summer, ahead of the start of the interest rate cut cycle, and momentum investors may want to get in on this small-cap player now.
For traders, options are limited. But the January 2025 $2 calls, last trading for about $0.25, could see mid-to-high double-digit returns on a continued rally into early next year.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.