Middle East Current Chaos
With increasing destabilization going on the Middle East currently, oil prices pushing higher, I see a possible global slowdown in growth near-term and continued stock selloff from last week’s market action. If the oil price stays high it could lead to demand destruction which can be another cause for lower growth longer-term. The market last week was worried for whatever reasons with its biggest weekly drop in 3 months. With the way the market is currently, I’ve got what I consider to be a low-risk high-reward short sell on a Healthcare Real Estate Investment Trust listed below.
What If Higher Oil Prices Stay High?
To start with consumer spending could decrease, and new job creation which is slow already, slows even more leading to slower growth. The USA residential home market would remain extremely weak to almost dead. The European sovereign debt crisis gets worse and spreads beyond Europe. Higher fuel prices would very likely squeeze tourism and travel. Global trade would slowdown with increased fuel transportation costs. All of these would affect confidence that a real economic recovery is possible helping manifest a continued slowdown. The Federal Reserve may be forced to raise interest rates to fight off inflation slowing down the economy even more, and putting further pressure on growth and stock prices. Budget deficits could stay high, and USA borrowing costs could increase because of lower tax collections. Then again the current high oil prices may not sustain, and these negative scenarios may not happen, but it would be prudent to watch for and get ready for them if they do.
US State Governments Going Bankrupt?
Many Governors are begging the Federal Government to not do anything that would put more stress on their already highly stressed local economies. President Obama is hoping that the economic recovery won’t stall if Congress cannot agree on spending cuts to avoid a government shutdown. This situation is a real strong indicator of the current health of at least the USA, and if not fixed soon, causing more pain and slowdown in growth for the time being. I currently see global growth slowdown an inevitable situation that is already playing out. The real question is which countries survive it the best? I suggest China, India and Asia survive the best with their current positive and real organic growth, but even their stock prices have been decreasing lately suggesting a very possible continued global growth slowdown is still in the works.
Healthcare Realty Trust
HR’s price performance has been a little lackluster with -11% 3 year return, 7% one year return, and 6% three month return. It’s paying a 5% dividend, and its price to earnings ratio is in triple digits. Maybe that’s the reason for its low price performance. With the broad market looking to sell off more, I find Healthcare Realty Trust an excellent candidate for a low-risk high-reward short sale currently.
Sell Short Healthcare Realty Trust – Ticker HR
Sell Entry: 22.41 to 21.57
Take Profit Areas: 19.27 to 18.83, 17.44 to 17.06, 14.97 to 14.58
Healthcare Realty Trust Company Profile
Healthcare Realty Trust Incorporated, a real estate investment trust, engages in the ownership, acquisition, management, and development of real estate properties associated with the delivery of healthcare services in the United States. It also provides mortgage financing on healthcare facilities. As of December 31, 2005, the company had invested in real estate properties, including medical office/outpatient facilities, assisted living facilities, skilled nursing facilities, inpatient rehab facilities, independent living facilities, and other inpatient facilities. As of the above date, it owned 237 properties. As of the same date, the company provided property management services for 138 healthcare-related properties. Healthcare Realty Trust qualifies as a real estate investment trust for federal income tax purposes. The trust would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded by David R. Emery in 1992. The company is headquartered in Nashville, Tennessee.
Click the Healthcare Realty Trust stock chart below for a larger view.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in HR over the next 72 hours.