As much as we do not like to admit it, rising foreclosures are a reality in the housing crisis. One of the fundamental problems in our economy has been that Americans bought more house than they could afford when times were good. Now that times are tough, many homeowners are in over their head. Public Storage being the largest self storage company is uniquely positioned to take advantage of this sad phenomenon. As people are forced to downsize, many if not most, will need storage facilities for their extra furniture, etc.

Ockham views PSA’s current Cash Earnings multiple as significantly below its historical average, as calculated by our proprietary model. It is important to compare PSA’s current Cash Earnings multiple to that metric’s historical highs and lows in order to identify the current relative attractiveness of the stock to value investors. With a historical high Price-to-Cash Flow of 49.61x and a historical low Price-to-Cash Flow of 31.15x, an investor can determine where value becomes optimal. The current level of Price-to-Cash flow is just 12.5x–69% below its historical average. So, were PSA’s Price-to-Cash Flow multiple to return to the low end of its historically normal range an investor could expect to see significant price appreciation from current levels.  If you are looking for a company with exposure to real estate but with a strong balance sheet and relatively little debt, then we believe–particularly after yesterday’s steep price decline–that Public Storage (PSA) fits the bill.