AIV Stock: Aimco Declines Are a Major Opportunity

Apartment Investment and Management Co (NYSE: AIV) is tumbling in the market this morning, giving up more than 80% of its value. The company announced that it has completed the separation of its business, creating two separate, distinct, publicly traded companies. However, that’s not what’s leading to the massive declines. 

Ultimately, the declines are the result of the announcement that the stock has been booted from the S&P 500. Nonetheless, the declines are likely a major overreaction, creating an opportunity to buy at a discount. Here’s what’s going on:

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AIV Stock Is Booted From the S&P 500

As mentioned above, the catalyst that seems to be causing the declines this morning is recent news that broke surrounding Apartment Investment and Management Company being kicked out of the S&P 500.

The company was replaced by Tesla Inc (NASDAQ: TSLA). 

Why Being Booted From the S&P 500 Is Leading to Declines

The fact that AIV stock was booted from the S&P 500 index is a very painful reality for the company and its investors. Ultimately, listing on the S&P 500 offers a level of support provided by strong, relatively guaranteed demand for the stock. 

You see, index funds, ETFs, and mutual funds that have the S&P 500 at their center buy every share of stock listed on the index. That means that with AIV stock being booted from the index, all of these investment grade funds will have to sell their shares, replacing them with Tesla. 

So, were more than 80% of shareholders holding the stock through investment grade funds?

No, not at all. However, when investors see a stock get booted from a major stock market index, they prepare for the worst as investment grade funds sell their positions. That’s what we’re seeing today, and in my opinion, 80%+ declines are a serious over exaggeration to the news. 

Apartment Investment and Management Company Announces Separation Completion

Outside of the S&P 500 news, Apartment Investment and Management Company announced that it has completed a planned separation of its business.  The separation creates two distinct, publicly traded companies, including Apartment Income REIT Corp (AIR), and Aimco (Apartment Investment and Management Company). 

In the release, the company explained that Aimco will retain its growing business of developing and redeveloping apartment communities. The company will also pursue various other value-creating investments across the United States multifamily sector. 

Moreover, the company said that the distribution of AIR common stock was completed on December 15, 2020. Under this distribution, each shareholder of AIV stock received one share of AIR stock. 

What Analysts Say About AIV Stock

According to TipRanks, analysts have a pretty dull view of AIV stock. However, I expect analysts to upgrade the stock to a buy following the tremendous declines today that are bringing the stock to a serious undervaluation. 

Nonetheless, there are currently seven analysts covering AIV stock. One rates the stock a Buy, five rate it a Hold, and one rate it a Sell, for an overall consensus rating of Hold. However, looking at the target prices and the current stock price following the declines outlines a serious opportunity. 

At the moment, the low price target is $40 with the high price target being $47.05, for a median price target of $42.38. Considering the stock’s current price of well under $10 per share, these price targets, whether high or low, represent the potential for gains in multiples ahead. 

Risks to Consider Before Buying AIV Stock

Any investment you make will come with risk of loss, that’s just the name of the game. In the case of AIV stock, the most significant risks to consider include:

  • S&P News Is Horrible. There’s no way to sugar coat it, being booted from the S&P 500 is bad news. However, I believe that this is largely priced in and actually sending the stock to an undervaluation. Nonetheless, not having the support of the S&P 500 means that demand for the stock will be lower. 
  • Real Estate Risks. AIV is a real estate company. As a result, the company is at the mercy of the real estate sector. Many argue that while the real estate market is hot at the moment, economic blues caused by COVID-19 may soon lead to a crash in real estate. If this is the case, AIV stock will feel the pain.

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Final Thoughts

All in all, Aimco is having a horrible day today, and there’s no doubt that many have lost a fortune here. Nonetheless, I see this as a huge opportunity. 

Think about it. 

Yes, the stock was booted from the S&P 500. Yes, the company will have to deal with the fact that it won’t receive demand from investment grade funds focused on the index. However, there has been no detrimental change to the company’s core business. As a result, a recovery will likely take place relatively quickly, giving investors that buy AIV stock now an opportunity to see serious returns.