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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • Health Care REITs Break Out 0 comments
    Apr 18, 2011 11:35 AM | about stocks: HCN, MPW, DVA

    Improving prospects for the industry, attractive yields, and a positive technical picture makes these two health care REITs worthy of consideration for anyone’s portfolio.

    Health care is one of my favorite sectors for the second quarter, and though biotech stocks have the best potential for dramatic gains, another way to participate in the positive action in this sector is through the health care REITs.

    The Dow Jones Specialty REITs Index has been outperforming the S&P 500 for some time, and both Medical Properties Trust (MPW) and Health Care REIT, Inc. (HCN) have just broken through major resistance and have quite high yields.

    Click to Enlarge

    Chart Analysis: The weekly chart of the Dow Jones Specialty REITs shows a nice rally since last December’s lows, but the index has traded in a tight range for the past two months.

    • The specialty REITs did not drop much with the overall market in March, which is positive. The chart has next upside targets in the 125-127 area, about 5% above current levels
    • The relative strength (NYSE:RS) analysis (in green) shows that this industry group has been stronger than the S&P 500 since late last year, line b
    • The weekly on-balance volume (OBV) shows a strong surge early in 2011 as it broke out above major resistance at line c. The OBV recently retested the breakout level and has moved back above its weighted moving average (WMA)
    • Good support is now in the 114.60-116.00 area

    Medical Properties Trust (NYSE:MPW) is a $1.2 billon health care REIT based in Alabama whose properties consist primarily of general and long-term acute care hospitals. It yields 6.8% with a current ratio of 5.68. The current ratio is a measure of the company’s liquidity and its ability to pay off its obligations, thus, 5.68 means that MPW has 5.68 times more assets than it does obligations.

    • The weekly chart shows that on Friday, MPW closed above long-term resistance, line d, at $11.70. The 127.2% retracement target is at $12.50
    • The triangle formation, lines d and e, has upside targets in the $14 area
    • The weekly OBV has moved through resistance at line f, and volume picked up last week
    • There is initial support now at $10.90-$11.15, with much stronger support now in the $9.80-$10.00 area

    Click to Enlarge

    Health Care REIT, Inc. (NYSE:HCN) is a $7.8 billion Ohio-based company that invests, develops, and manages properties with a primary focus on health care. It has a current yield of 5.2% with a current ratio of 3.6.

    • The close last week was above the trend line resistance (line a) that goes back to the 2008 highs. The upper parallel resistance (line b) and the next upside targets are in the $57 area
    • The weekly OBV is above its weighted moving average but has not yet overcame the resistance at line d. The daily OBV (not shown) has been in a strong uptrend since the February lows and is acting stronger than prices
    • There is minor support for HCN now at $51.50 with further support in the $50 area. More important support is now at $46.70-$48

    What It Means: The positive action in these two health care REITs is consistent with the improving economic prospects for the industry as a whole. Both have traded in a fairly tight range recently, which allows for a reasonable stop to be used. The attractive yields and positive technical picture makes them worthy of consideration for anyone’s portfolio.

    How to Profit: Because of the excellent yield on these two REITs, a slightly wider stop is recommended, but be sure that you use one regardless.

    MPW has the best volume pattern. I would buy MPW at $11.57 or better with a stop at $10.77 (risk of approximately 6.9%). Sell half the position at $12.44 and raise the stop on the remaining position to $11.23.

    For HCN, I would go long at $52.58 or better with a stop at $49.84 (risk of approx. 5.2%). Sell half at $56.66 and raise the stop on the remaining position to $51.44.
    Portfolio Update

    In January, I recommended buying DVA at $70.26-$70.66 with a stop at $67.17 and first upside targets at $75.30 and $76.30. Then, in February, I recommended selling half that position at $76.66 for an 8.5% profit. DVA closed Friday at $87.04, and I would now raise the stop on the remaining position from $77.33 to $82.22.

    Stocks: HCN, MPW, DVA
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