Omega Healthcare Investors (OHI) is the largest publicly traded real estate investment trust (REIT) ...
2 High-Quality REITs to Buy on Sale
03/06/2012 10:35 am EST
These two specialty REITs have healthy dividends and strong cash positions, and with the group’s seasonal bottom expected this month, favorable buying opportunities likely await.
Stocks came under pressure overnight as Hong Kong’s Hang Seng Index was down over 2% after the Chinese premier lowered the country’s growth estimate for 2012 to 7.5%, down from 8% where it had been since 2005.
The technical readings for the US stock market weakened further on Monday even though the major averages closed well off the worst levels. A sharply lower close today (below $135.80 in the Spyder Trust (SPY)) will indicate that the long-awaited correction is underway.
The majority of REITs have corrected over the past few weeks, and specialty REITs are down almost 4% from the recent highs. They are likely to correct further alongside the rest of the market, but as discussed below, the seasonal tendency is for the specialty REITs to bottom in early March.
These two REITs have current ratios well over 1.0, which is a positive sign for their dividends. The current ratio is calculated by dividing the current assets by current liabilities, and this is one way to measure a company’s ability to pay its short-term obligations.
Chart Analysis: The weekly chart of the Specialized REITs Index shows that it was able to surpass the 2011 highs in early 2012.
- The industry group is still above its uptrend, line b, with additional support in the 113 area, which is about 3% below current levels
- The seasonal analysis shows that this group typically forms a low on November 20 and a final seasonal low on March 5
- The specialized REITs form an initial peak on April 29 and then a secondary peak in September
- Once the correction is over, we will be able to better calculate the next upside targets
LTC Properties Inc. (LTC) is $933 million health care REIT that operates senior housing and long-term health care facilities. It has a current ratio of 2.8 and yields 5.7%. It made a high four weeks ago at $32.86 and is now down 6.6% from the highs.
- LTC has reached first support, line a, with stronger support in the $28.90 area (line b)
- The relative performance, or RS analysis, broke its downtrend, line c, last September and has pulled back to stronger support
- The on-balance volume (OBV) broke its downtrend, line d, in late October
- The OBV did make significant new highs in early 2012, but has now dropped below its weighted moving average (WMA)
- Initial resistance now stands in the $32 area
Rayonier Inc. (RYN) is a $5.4 billion conglomerate that manages and sells real estate and managed timberland properties in addition to producing cellulose products. It has a current ratio of 1.9 and yields 3.6%.
- RYN made a high in January of $47.56 and is now down 6.3% from the highs
- The next strong support is in the $42.65 area, line e
- The long-term uptrend, line f, is in the $39 area
- Relative performance confirmed the recent highs and is already back to first support. The long-term uptrend, line g, is significantly lower
- Weekly OBV confirmed the recent price highs but has now dropped below its weighted moving average
- OBV has next support at the uptrend (line h) with further support at line i
- RYN has initial resistance in the $45.60-$46 area
What It Means: If the broad market’s correction is now underway, my analysis indicates it should be a buying opportunity. For those who are underinvested in stocks or want to add some yield to their portfolio, these two REITs look attractive at lower levels.
How to Profit: For LTC Properties Inc. (LTC), go 50% long at $29.92 and 50% long at $29.30 with a stop at $28.28 (risk of approx. 4.5%). On a move above $31.68, raise the stop to $29.70.
For Rayonier Inc. (RYN), go 50% long at $43.76 and 50% long at $42.86 with a stop at $39.78 (risk of approx. 8.1%). On a move above $45.60, raise the stop to $42.90.
Related Articles on REITS
Brett Owens, editor of Contrarian Outlook, is a leading expert in income investing, including an exp...
TPG Real Estate Finance Trust (TRTX) is a finance REIT focused on commercial mortgage transition loa...
John Reese selects stocks based on a detailed historical analysis of the strategies of many of the s...