Why this ASX 200 stock could be a must-buy in July

Investors that are looking to bolster their portfolio with a high-quality ASX 200 stock might want to check out Goodman Group (ASX: GMG).

That’s the view of analysts at Morgans, which added the integrated industrial property company to the broker’s best ideas list this month.

Why is Goodman an ASX 200 stock to buy?

Morgans sees plenty of value on offer with this ASX 200 stock at present.

According to the note, the broker has an add rating and a $24 price target on its shares.

Based on the current Goodman share price of $19.77, this implies a potential upside of 21% for investors over the next 12 months.

In addition, the broker is expecting modest 1.5% dividend yields this year and next.

What is the broker saying?

While Morgans acknowledges that this ASX 200 stock doesn’t look cheap compared to local peers, it feels it is attractive when you look overseas. Particularly given its high returns and low leverage. It explains:

GMG represents c.27% of the ASX A-REIT index and is one of the few offshore earners in the A-REIT space. GMG rarely screens cheap against domestic peers, but within the context of its offshore peers, it consistently delivers higher returns at lower levels of leverage and at a comparable price to book ratio. Growth in Assets Under Management and development completions are a key determinant of value and an AUM of A$80bn (US$50m) is comparatively modest in a global context, whilst A$7bn (US$5.5n) of completions pa we see as likely sustainable.

The broker also notes that with interest rates on the rise, it prefers actively managed property companies with strong balance sheets. Goodman ticks these boxes for Morgans. It adds:

With continued increases in interest rates and persistent inflation (most notably construction costs), risks abound the REIT sector. This drives our preference for beds and sheds, reflecting the strength of those underlying operating markets. Given the duration risk from higher rates, we prefer more active managers who can grow AUM and add value from an active buy, build, manage strategy. To this end, strong balance sheets are also key to navigate any deterioration in book values.