On Friday, April 3rd, a massive upward surge in real estate stocks took place in the final hour of trading. (see RWR ETF, right) Why? One would be tempted to say "short covering" but that was not the whole story. The actual fuel to the rise was the success of a new offering for KIM:
NEW YORK, April 3 (Reuters) - Shares of shopping center owner Kimco Realty Corp KIM.N closed up 25.5 percent on Friday after strong demand for its stock offering prompted the company to increase the number of shares offered, lifting the badly beaten real estate investment trust (REIT) sector. Kimco sold 91.5 million shares, up from the previously expected 70 million, after demand was stronger than expected. The shares were offered at $7.10 each. After the close of the market, the company said its underwriters exercised an option to sell an additional 13.725 million shares, up from the previously planned 10.5 million over-allotment. The credit crisis has pummeled REIT stocks, with investors concerned that the companies may not be able to refinance their sizable debts when they mature.
How to take advantage of this new sector activity? One could of course trade the ETF: RWR. Like any sector fund, though, the ETF is only for money which you cannot target better. On Friday, RWR went up over 9 percent, but the top performers in the sector were up over 25%. So, you should take up the challenge, and put your money instead into specific stocks, and rely on RWR for sector timing information. I chose two for hold-through-the-weekend plays: SPG and KIM.
SPG broke through its 50-day SMA at EOD Thursday, propelling it upwards Friday. The co is favored by analysts with a target of $50 to $65. We can look at the behavior of SPG after it broke its 50-day as an exploitable tell for stocks in the sector, and indeed this is my thesis for the next series of plays. I hold ITM April SPG calls.
KIM was the trigger for the breakthrough so it is my other holding. The co has recent upgrades from two analysts with targets over $20. The price rise in KIM is amazing considering that Thursday was the company's ex-date for their outrageous $.44 dividend, paid at great cost as can be seen by the payout ratio of 277%!
KIM also broke through its 50-day SMA at EOD Thursday, and it is seemingly on a mission to hit its 200-day. I hold ITM April KIM calls.
I have two other plays to consider as backups. Vornado Realty VNO has received recent downgrades, but it shows the clear signs of a breakthru as it barely has cleared its 50-day, it had a move of 13% Friday, and has a very obvious February Gapfill in front of it pulling it upwards. I think it could easily move into the $45-55 zone this upcoming week. I hold no VNO at this time.
Macerich, MAC, is another to watch. It touched its 50-day and fell back, but the moment it clears the line it can be expected to jump, and if the sector remains hot the 50-day will be history on Monday. MAC has been an iconic spec play for the sector for a while. If it receives enough momentum it is capable of a truly incredible appreciation, well up into the $50-70 region. It has an amazing short float of 37% as of the end of March. Once this one moves, it will become extremely volatile. Because of its potential, it could be an even better second-tier play than VNO. I hold no MAC at this time.
So what, you may ask, about the low-priced stocks? To some extent, they are now also second-tier plays in this sector. When you have the high priced names moving 20%, you have a better chance of success trading them rather than the low-priced names due to the high risk of the smaller names. I have been trading NRF and CBL and they may continue their rise, especially the latter, but I don't want to encourage speculation in them when they have gone from being the dog to being the tail of the dog.
I went through all the market's REITS, not just retail but also residential, industrial, healthcare, etc, and made a watchlist. You will find low-priced names included. Be careful, these are not recommendations, just a watchlist. They are selected to have the following traits: upside potential (based on technical, not fundamentals), movement up on Friday, and are optionable.
SPG, CBL, FRT, EPR, IRC, KIM, MAC, PEI, PPS, REG, SKT, SLG, TCO, VNO, WRE, WRI, BDN, RYN, NNN, DRE, CUZ, HME, EDR, BXP, KRC, LRY, DCT, PLD, AMB, ARE, DLR, HST, FCH