the Trade-Radar + TradingStockAlerts blog

This weekend I have a bigger than usual list of Alert HQ BUY signals based on daily data so I began to browse through them. Clicking on the column headings allows you to sort by that data element. I started by  sorting by Signal Strength. I was surprised to see a bunch of REITs at the top of the list. After spending last fall in a trading range, many REITs surged into the end of December and then fell back in the new year.They now appear to be making an effort to climb back to new highs. I'm no expert in the fundamental analysis of REITs. What I can say is that it's worth paying attention when an entire sector begins to move. Here is the list of REITs that are on this weekend's buy list: Symbol Name Signal Strength Dividend Yield ARE ALEXANDRIA RE EQUITIES 99% 2.27% AVB AVALONBAY COMMUNITIES 99% 4.53% BXP BOSTON PROPERTIES, INC. 91% 3.00% FIO ISHARES FTSE NAREIT INDUSTRIAL/OFFICE CAPPED INDEX FUND ...

I don't typically comment on financials or real estate that much these days but I this weekend I saw an article in the Wall Street Journal and it made me smile. Fannie Mae (FNM) and Freddie Mac (FRE) have been buying and guaranteeing mortgages in greater and greater numbers during the course of the real estate implosion. Their basic operation is to securitize mortgage loans originated by private lenders in the primary mortgage market into mortgage-backed securities, which are bought and sold in the secondary mortgage market. They have been nearly like a lender of last resort as banks have worked overtime to get mortgages off their balance sheets. As you may know, when the real estate bubble burst and homeowners began to default, Fannie and Freddie increasingly came under pressure and needed a bailout to the tune of about $100 billion. These government sponsored enterprises are now essentially owned by taxpayers. As a card-carrying taxpayer, then, I was pleased to read the a...

You may have noticed today that the ProShares UltraShort Real Estate ETF (SRS) was up strongly Monday (3/16/09), tacking on almost 16%. This is far in excess of the 4% that the UltraShort Financial ETF (SKF) rose. What gives? It could be that investors are beginning to realize that the situation in commercial real estate is becoming worse than what we have seen in residential real estate. The Fed provides the data from which we constructed the following chart. It contrasts the charge-off rates for residential real estate loans and commercial real estate loans. Whereas it looks like charge-offs in the residential sector are beginning to moderate, it appears that charge-offs in the commercial sector are really taking off, increasing rapidly and surpassing the rate for residential loans. As of the end of the 2008-Q4 there was no moderation at all in the slope of commercial loan charge-offs. Many financial institutions have seen their stock prices decimated when mortgage-backed securitie...

In looking at the constituent holdings of the ProShares Ultra Financials ETF (UYG) I noticed that there seemed to be a good number of REITS included. To investigate further, I took the holdings of the ProShares Ultra Real Estate ETF (URE) and did a direct compare to the holdings of UYG. To my surprise, every single one of the holdings in the Ultra Real Estate ETF, comprising a variety of 80 different REITs, was also included in the Ultra Financials. Relative performance -- It is interesting to see how real estate underperformed the combined financials until March of 2008 when the situation turned around and financials became the one that underperformed. In the first part of the chart, you can see URE begin to weaken as the news about troubles in the real estate sector began to take a toll. During this time, the idea that the problems in real estate wouldn't spill over into the rest of the financial sector or the general economy was still in vogue. By last October reality began to s...

Ben Bernanke spoke today before a group of community bankers in Orlando, Fla. He encouraged bankers to find creative ways to address the problems in the mortgage market. Preventing foreclosures, he implied, should be a priority as it would "help not only stressed borrowers but also their communities and, indeed, the broader economy." Mr. Bernanke, here is my suggestion. Instead of banks reducing principal or instituting artificially low interest rates, why not have borrowers move into homes they can actually afford. If done in a coordinated manner, the process could cascade down from the most expensive homes to the least expensive. Essentially, everyone moves down a notch to a more reasonably sized home with a more affordable mortgage. Those at the lowest end of the spectrum who, based on their financial condition, should never have become homeowners in the first place would be expected to return to the rental market. This would keep the majority of troubled homeowners in a ...

Today Reuters reported the following: "Home builder sentiment fell for a seventh straight month in September as tougher mortgage requirements hindered sales from bloated inventories, the National Association of Home Builders said on Tuesday. The NAHB/Wells Fargo Housing Market index declined 2 points to 20, matching the record low of January 1991 when the economy was in the throes of a recession, the NAHB said in a statement. But an interest rate cut by the Federal Reserve on Tuesday offered the industry hope, the NAHB's chief executive said." After the Fed cut both the Fed Funds rate and the discount rate by 50 basis points today, the SPDR HOMEBUILDERS ETF (XHB) took off and registered a 5% gain on the day. The 24/7 Wall Street blog reports that the Jim Cramer "Mortgage Madness" portfolio was the best performing group today. Beazer Homes (BZH) was up 18% on the day! Was that performance warranted or was it "irrational exuberance?" The home builders ar...

The latest Census Bureau monthly report on construction spending shows two trends moving in opposite directions. It is no surprise to see single-family residential construction spending going down month after month. Yet it is somewhat of a surprise to see spending for office, lodging, shopping centers, shopping malls and multi-family dwellings holding reasonably steady or in some cases even showing modest increases (see chart below). The continued strength in the commercial sector despite the general real estate malaise and the recent fall-off in deal-making implies developers are making a huge bet on strength in the economy making all this new commercial property profitable. In contrast to the positive attitude exhibited by the commercial real estate developers, Bloomberg reported the following items today: "Prices of U.S. commercial real estate could fall up to 15% in what would be the worst decline since the 2001 recession" "In July, investors bought the fewest comme...

With the overall market plunging over 2% yesterday, I was surprised to see REIT ETFs remain firm throughout most of the day. The two ETFs that I watch are an admittedly small sample of the REIT universe but they both acted very similarly yesterday: they were down only fractionally which was a sign of strength compared to many other market sectors. The iShares Dow Jones US Real Estate (IYR) and iShares Cohen & Steers Realty Majors (ICF) ETFs both fell less that 0.2% which means they held on to most of the gains they made on Wednesday. Of the two REIT stocks that I watch, their performance was completely divergent. Ventas Inc. (VTR) just announced earnings that beat expectations and its stock prise actually rose over 2% yesterday. Health Care Properties (HCP) lost about 2%. Among other well know REITs, the same divergence was observed. Duke Realty (DRE), down 3%. Boston Properties (BXP), up almost 2%. Taubman Centers (TCO), down less than 1%. Acadia Realty Trust (AKR), up almost 2%. ...

REITs focused on commercial real estate have been dropping due to rising interest rates and the fear of a credit crunch that might put a damper on the lively pace of buyouts in the sector. With rates coming down, I expected these REITs to at least slow the rate at which their stock prices have been falling. As we saw this past week, though, selling actually accelerated. What's going on? Opening the Wall Street Journal this weekend, I believe I found the answer. There is an article detailing the increase in delinquencies in the commercial real estate sector. Previously, delinquencies and foreclosures are things that were only being discussed in relation to residential real estate. Now it seems they are spreading to commercial real estate, as well. There have been some articles in the business press about how vacancies are low and rents rising in commercial real estate. Thus, it initially comes as a surprise that there are delinquencies. In looking into the details, however, the caus...

It has only been a week or so since I recommended Health Care Properties ( HCP ). After four days of relentless selling the stock has now completely reversed the TradeRadar BUY signal and plunged back into the SELL zone. Uncertainty in the credit markets and non-stop bad news from the real estate sector is wreaking more havoc on real estate stocks of all kinds. Still, the fundamentals of this REIT remain attractive. Indeed, the yield has even improved and is up around 6% now. Technically speaking, though, the charts tell a grim story. My strategy is to try to buy AFTER a bottom has been established. Unfortunately, it looks like HCP threw me a real head fake and has further to fall. We will keep an eye on it and be prepared for when it does begin to turn around.

I have been writing for some time now about REIT ETFs. For the last few months I have been negative on these funds due to valuation and interest rate concerns. There is, however, one corner of the REIT universe that might be worth a closer look: health care REITs. These companies finance, own, and lease health care related and senior housing facilities including nursing facilities, assisted living facilities and hospitals. To my knowledge there isn't an ETF targeted precisely on this sector so I will describe two individual REITs that appear to be poised for a comeback. The first company is called Ventas Inc. ( VTR ) The market cap is around $4B and the company is trading around $38 per share or about $10 (almost 20%) below its all-time high of $48. It is currently yielding 4.9%. The second company is Health Care Property Investors Inc. ( HCP ) The market cap is over $6B, it is trading at around $30 per share or $12 (about 28%) below its all-time high of $42. It is currently yieldi...

Today's release of the Fed Beige Book lit a fire under the markets. The Beige Book painted a picture of an economy that was growing at a modest pace without suffering undue wage pressure or other inflationary impacts (except the usual jumps in food and energy prices). The situation in the real estate sector was another story. Residential construction is still in the doldrums. There were declines noted in new and existing home sales as well as falling prices and rising cancellations of new home sales. My expectation is that home builders are not yet out of the woods and ETFs like the SPDR S&P Homebuilders ( XHB ) will see more weakness in the near term. Today's results for XHB, however, were anything but weak as investors, caught up in the euphoria of an overall benign read on the economy from the Beige Book, bid up shares in defiance of common sense. Maybe they didn't read the paragraphs on residential real estate. The commercial real estate sector appears to be gai...

I recently wrote a post that discussed the potential for another round of buyouts in the REIT market. In that post, I came to the conclusion that there was a good chance we are now witnessing the beginnings of another burst of buyout activity. There are indications, however, that we may be closer to the end of this cycle of buyouts than the beginning. The Wall Street Journal recently published an article that looked at property prices and how they are affecting dealmaking. Commercial property, the kind that REITs typically invest in, used to be valued for the stream of payments that could be derived from rents over future years. The ability to raise rents or sell the property at a premium price was looked at as added, but uncertain, value. Now, deals are being structured that assume both rents and property prices will rise significantly. Therefore, the prices for these deals are much higher than they would be otherwise. It now appears that property prices are reaching levels that...

The iShares Dow US Real Estate ETF ( IYR ) just fell out of a trading range today. Looking at the chart below, you can also see it happened on a pickup in volume. I have written previous posts on how the problems in subprime mortgages were not really affecting the commercial side of the real estate market and, indeed, real estate investment trusts have held their value much better than the home builders. Unfortunately, the continued dismal news from the housing sector lately must finally be taking its toll on the REIT sector, too. With the value of real estate falling in some markets, perhaps rental properties and condos are not the attractive investments many REITs originally thought they were. With reports of retail sales down, building or owning malls may not be as lucrative as it once was either. I have mentioned before that there is an inverse ETF that more or less tracks IYR. It is the ProShares UltraShort Real Estate fund ( SRS ). You may want to check it out. IYR will pr...

Back in December, when problems in the real estate market were beginning to hit the news, I wrote a post about the situation and pointed out that if you wanted exposure to real estate in your portfolio, REITs were the place to be and homebuilders were to be avoided. Since that time, the news from the real estate sector has gotten both worse and more publicized. Having written another post on using inverse sector funds , I find that many searches to the TradeRadar blog are looking for simple ways to use the concept to play the problems in real estate via ETFs. It would seem that the two places where real estate would have the most impact would be real estate ETFs, obviously, and financial ETFs. Zeroing in on homebuilders, there is the SPDR Homebuilders ETF (XHB) which, since early February, has been enduring a bumpy ride downward with a few blips up every time some pundit proclaims we have seen the bottom. Is there an inverse ETF that corresponds to this one? Unfortunately no. Expandin...

Gloom and Doom Everyone has heard that the real es tate bubble has burst, interest rates are not conducive to homebuying, it's a buyers market, new home construction is plummeting, houses are sitting unsold for longer periods of time, etc. Stocks of most builders are well off their highs. Some say we have not yet seen the bottom in this market. All this is enough to attract those with a contrarian bent. If you are looking to buy when the news is bad, could this be a good time to jump in? It all depends on how you approach the real estate market. What we have seen in the real estate market is the demise of easy money and, with it, the demise of the McMansion. There is still significant activity in more modest homebuilding as well as in urban apartments, offices and condominiums. The companies that are diversified or derive significant revenue from these still active areas are prepared to rebound or, indeed, already have. Those companies that are still addicted to the wide margins av...