For all the technical minded investors or traders, you should put Enzo Biochem (ENZ) on your radar. The stock is near to breaking through a level which it touched recently. If it surpasses around the $6.30 point, the next stop could be between $7 and $8 per share. Keep your eye on this stock to see if it can keep it’s positive momentum. Remember, the trend is your friend.
Rail transportation is a main conduit in fostering economic activity throughout the world and particularly in North America. Peering back through history will lead you to understand that many of the largest cities/centers for economic activity developed around main rail road junctions. While rail roads are not a revolutionary force today, as they were in the 1800’s, they still serve as a key part of the world’s economic infrastructure. Data pertaining to freight carried on vial rail cars is a valuable data point in gauging the health of the economy.
The Association of American Railroads releases data regularly that measures rail activity in both the U.S. and Canada. Below I am including two charts recently updated by the association. The 2016 trend is certainly downward compared to the prior three years. The 2014 year, in terms of car loads is the post-recession high water mark. Prior to that period, transportation topped out in 2006.
Historically, the levels we are seeing so far in 2016 look more like 2010 and 2011.
The market has found its legs this week and, for the most part, has regained where it was prior to the Brexit shakeup. How strong is this rally? One area that throws a warning flag would be what slices of the larger market that have moved higher. Two parts of the S&P 500 that have outperformed are consumer staples and healthcare. Both of these areas are considered more defensive portions of the S&P 500. Therefore, the S&P 500’s current growth is being largely propelled by generally more defensive investment plays.
More aggressive areas of basic materials and financials are lagging the general market rebound of the S&P 500. The chart below tells the story of the past week.
If groups like basic materials and financials can gain more momentum, then the prospect of the index moving above its current range-bound realm would be greater.
The market broke through the level of resistance hit this past Friday. This is unsettling from a technical perspective because the path of least resistance is set for lower lows in the short-term. Will this occur? Time will tell. The tend is currently set to continue lower.
I actually wasn’t too surprised by Friday’s move lower. If you recall the week leading up until Thursday saw some very bullish moves. Friday’s downward swing took out those positive movement from earlier in the week. Today’s negative trend puts the market in more unsecured waters. I read this as a confirmation that their is greater concern in the near-term and that market sellers are gaining the upper hand.
On a final note, I think times like this are great lessons for investors. Right now you might be asking yourself, “What should I do to protect my investments?” Buy, sell or hold? Where do I turn? This is sort of like being in a hurricane and asking how to save your house. Once you’re in the storm it’s much more difficult to react than prior to being in the storm. How can this be avoided?
In short, you either set stop orders to help you get out of positions based on certain rules, be proactive in terms of setting target prices (whether it be for ETFs, individual stocks or other funds) or develop hedges within your portfolio to counter negative price movements (short positions).
Again, your success of protecting your property isn’t while a storm is going on, it’s prior to the storm hitting.
The Friday trading session for U.S. markets was rather interesting. The news coverage of the market’s reaction to the Brexit was overdone. The market, as measured by the S&P 500 was down roughly 3% at the close. It was a decent drop for one day, but not all that wild compared to how the media was reacting.
Looking at the market from a technical viewpoint, the movement down hit against a level of support that has been in place for a while. In April the price range was tested and held, then in May the market retraced to the level and support held again. Today we find the market back at that level.
Monday is just as big of a day for the market as today’s post-Brexit was. Why? If the market holds within the support level, this will signal a short-term bullish case for investors. If the support level is broken, then we could see a much heavier sell off. How much of a sell off? It would not be surprising to see the market retrace back to where it bottomed out during in January and February earlier this year.
The direction the market takes off of this sell-off depends on how institutional investors view the additional risk the Brexit throws into the market. How much is tangible calamity and how much is exaggerated political posturing that makes good television? It’s not that the Brexit is a minor event, but, as an investor, you must answering the question of does it some how fundamentally change the path and current assumptions built into current economic projections? What are the near-term implications versus what are the longer-term implications?
Today’s election in Britain should give you an idea of how volatile a market can become in a very short period of time. Since the start of the week the market has been punch drunk on assurances that the leave vote would fail in Britain. Throughout today and into after-hours trading certainty remained. A significant amount of money bet long on the assumption that a vote to remain would reinforce the status quo and bring a higher level of certainty to the market. That was shortly shattered as votes started being counted. Whether it’s the general market or currency trading, the market got a rude awakening when what was assumed to be an open and shut case turned into the exact opposite.
As an investor, dealing with this situation would have been near impossible to get right. A little over a week ago all we heard from polling and the media was that the leave vote has gained strength and then for about the last week the opposite was the case. The market sided with the most recent trend believed; a stay vote victory. Major financial publications, such as the Wall Street Journal’s Barron’s weekend publication led the charge. Confidence continued to build.
The confidence that was built has now crashed. Investors on the wrong side of the trade are going to move to get out and other investors will pile on to sip from the downstream of market momentum. The situation is ripe for an overreaction in the opposite direction versus the positive reaction seen throughout this week. Uncertainty is a dangerous animal in the investing world.
Again, as I have said before, the fact that we have a greater share of risk-adverse investors in investments with greater risk profiles creates a situation where average volatility can lead to exacerbated levels of volatility in a short period of time.
Here’s to an interesting Friday.
Often times we hear debated the market’s ability to accurately reflect the health of the economy. Though a certain level of distortion exists throughout the market in terms of how well or how bad things are on Main Street, Wall Street does ultimately come to reality with the boots on the ground economy…even if it’s only a momentary reconciliation.
The purpose of a bear market is to bring the excesses that were borne in the bull market’s period back in line with reality. It’s sort of like fruit on a tree; at a certain point the level at which the fruit is ripe becomes ideal. That precise point is hard to know and the spectrum of ‘ripe’ may last quite a while. At a certain time the stage of being overripe arrives and shortly after rotten takes it place. The bear market has set in.
Bear markets are a natural and healthy process in our economic growth. They are not simply a trading phenomenon. Bear markets exist in the real economic world. If we look at the energy market and particularly oil, we see that high prices brought the development of new technology (fracking) into the market and an expansion of exploration and extraction. Greater supply was eventually created, which drove down prices to such an extent the glut in supply put a number of newly producing rigs out of production. A reconciliation with the new reality had to occur. That which was sweet in the oil industry became too sweet and bear market arrived.
As in everyday life, the party does not last forever. Heck, even the level of excitement at a party does not stay constant. Bear markets should not be feared, they should be understood.
In our previous installment we set forth the case as to why REITs, with an exposure to the Florida market, will be in a increasingly friendly for investors in the years to come.
What options exist for investors looking to following such an investment strategy? Two REITs that speak directly to the theme of an aging Baby Boomer population and their desire for warmer climates are LTC Properties (LTC) and Senior Housing Properties Trust (SNH). Both companies provide exposure to independent and assisted living facilities. Both have a good deal of exposure to the Florida market, as well as the Texas, Arizona and California market. These markets, like Florida, are historical hot beds for retirement relocations.
Both of these companies provide a good deal of geographic and property type diversification. Dividends for both stocks are healthy and sizeable. Historical evaluation for both operations show a history of consistent dividend payments with increasing distributions. SNH has a higher volatility rating as measured by beta compared to LTC.
As you go forward in your research to evaluate these companies and other REITs, keep in mind the company’s use or overuse of debt. This can be done by looking at the debt to equity ratio and then looking at what is standard in the industry. Past practices of selling additional stock to finance projects can also be a potentially negative sign for investors. In addition, the dividend payout percentage can be helpful to identify possible signs of dividend sustainability or in-sustainability. We could compile a very long list of financial ratios and metrics that need to be evaluated…research is a requirement. Otherwise you should buy darts and throw them at stock labels for your selection method.
The point is that when you’re evaluating the companies listed or others, you need to have a sense of what the company is looking to accomplish and their strategy in doing so. A financial ratio held independently does not tell much of a story. Having a sense of the company as a whole is critical. In addition, knowing where the market is in terms of value is critical. While the long-term trend discussed in this entry is set to push such REITs higher in value, it would be foolish to believe any of these companies is set for perpetual increases without correction. The overall market will have a heavy hand in dictating their general direction. It does not hurt to wait for a broad market sell-off to establish an entry point.
Disclosure: No Position
Real Estate Investment Trusts (REITs) have become quite the darling of the investment world lately. Why? A number of reasons can be cited. First, REITs are associated with sizable dividend yields, which speak to a large class of investors that can only obtain fractions of a percent in a savings, CD or money market account. Second, they are tied to property, which many believe creates a certain base for stock prices in the case of a market downturn. Lastly, they offer a way to diversify a portfolio’s holdings beyond your run of the mill Dow Jones multinational companies.
REITs bring a lot of things to like to the table. I’m actually a fan of the concept and the investment vehicle. With that said, I would not say that all REITs are created equal, just as not all restaurants, tech companies or energy producers are created equal. REITs are subject to the laws of supply and demand, just as any other business is subject to such laws. Given that fact, it is very important that you invest in a REIT that is supplying housing, storage, office space, wireless towers or some other service that will be in demand in the future.
How do we know for certain what will be in higher demand in the future? One method is to look at human tendencies, past behavior and demographic trends. One demographic trend that I mention often is the transition of Baby Boomers out of the labor market and into retirement. As with their parents and their grandparents, as people age warmer climates become more preferable. One large reason is that your joints ache more when you get older and colder climates tend to exacerbate the problem. Therefore, more temperate climates are sought out.
Florida has become synonymous with retirement communities. The state has welcomed this population for years and has a recipe for success in attracting and retaining retirees. With the human condition remaining constant and a massive demographic block getting to the age where retirement communities seem to be more and more relevant, you can guess where this trend is heading.
The state of Florida is at the start of receiving another wave of out of state transplants. As the Baby Boomers retire and advance in age, they will continue to flock to Florida. Any REIT that has a large footprint in Florida will have the wind at their back in terms of growing operations and increasing profitability. It’s much easier to run further and faster when the wind is at your back, just as it is easier to thrive as a business when external conditions are in your favor.
In the next installment we will look at some recent Florida real estate statistics and explore a few investment options to consider.
In a world where the sort of ‘normal’ growth we experienced in the 80s, 90’s and most of the 00’s has disappeared, investors are now venturing further out into more obscure areas to find the growth of yesteryear. Often this means looking in places where exciting new technology is being developed. That’s valid, but it also carries more risk. Some emerging technologies boom and many bust. It’s the nature of the beast.
If you’re a growth minded investor that wants to keep the reins relatively tight on the risk monster, where do you go? It’s not an easy question given the economy’s lack luster recovery and future prospects. In times like these we need to turn to things that have a greater amount of certainty of happening. The old saying is that only two things are certain in life – death and taxes. You can’t argue with that. Yet, a number of other aspects of life are pretty certain, as well.
Father time is a tough cookie. He gets the better of all of us eventually. With age certain things tend to occur across the population. One is the reliance on a greater amount of prescription drugs. This is a consequence of greater ailments as we age. Our bodies, through the aging process and/or past events we’ve experienced, don’t function as well as they use to or we’d like them to. Therefore, drugs are provided in order to maintain some level of activity that we once new.
The giant demographic blimp known as the Baby Boomers are either near or in their retirement years. As each day passes, the likelihood of them hitting the prescription bottle becomes more and more likely. More users equals a bigger market and a lot easier growth environment for your pharmaceutical company.
Another fact of life is that if you stave off the reaper long enough, you’re going to find yourself in a state where you cannot take care of yourself on your own. Whether it is being in some form of senior living facility or having in-home care, assistance will be needed. This is a huge area of growth. Consider this, my grandparents are both in their 90’s. They both have a certain degree of assistance from caretakers. They have seven kids. If all seven replicate their longevity of life, the demand for assisted living services will increase by over 300%. The reason why the Baby Boom generation is such a handful for society is because families in this era were typically very large by today’s standards. Seven kids was not uncommon.
With better health habits and better healthcare, many Baby Boomer will outlive their parents. This means that this demographic wave will ride high until these members are in their 80’s and 90’s. Once at this point greater and greater demands will be put in assisted living facilities and service providers. Growth, which is already occurring, will balloon.
How do you position yourself to take advantage of these opportunities? First off, this isn’t something that is going to occur overnight. If I told you that you needed to go in the next month and load up on X, Y and Z stock, I would be an idiot. What we are facing is a lengthy trend that will gain significant momentum in the years ahead. This provides you with time to identify companies meeting the needs outlined above. In identifying them, think of those that are paying a dividend and have a record of increasing the dividend. This is a trend for the long haul and you want to be in companies that are going to reward you. A consistent dividend is good, a consistent divided that is growing is better.
Lastly, sit back and wait. Sell offs are great buying opportunities. We know a huge segment in our population is moving toward the age where drugs and assisted living are major wants and needs. If the need isn’t going away, then the industry is not going away. Be patient and wait for a good buying opportunity. When the time comes, then load up and wade into the positions you’ve identified.