August 6th, 2008

REITs and Retailers…. Now?

As I scan through my charts, I get a very mixed and confusing impression. On the one hand, my Market Timing Indicator is definitely clearly signaling a flashing red signal or “all-cash”. The S&P 500 Index has to go up another 5.0% before it turns yellow and 9.7% before it clearly becomes a green bull market signal. There’s a clear and present danger of another major leg down from here. I, along with many of my technical brethren, have been expecting a touchdown at around 1150, or 10.5% below yesterday’s close.

On the other hand, I see a number of groups (and some specific stocks) bucking the trend by moving to new high ground and several other groups making nice patterns that, under favorable market conditions, could become bases for sustained and extended runs.

Not surprisingly, I concur with many other commentators who point to the healthcare products and equipment stocks and some of the software and technology stocks. But there are a couple of other groups that you haven’t heard much about (so I’m probably sticking my neck and reputation far out in offering them). The reason you haven’t heard much about these groups from other quarters is probably because they actually are quite counter-intuitive:

  • Apparel Retailers and Manufacturers: I first mentioned this group May 10 in which a list several. With the one big exception of JCG, the others in the list have performed beautifully since. What makes this group so surprising as a potential buy is the recent news (see Barry Ritholz’s theBigPicture blog) about all the retail locations that chains are now shuttering. But we shouldn’t argue with the collective intelligence of the market (maybe a smaller pie mean larger slices for the remaining) so I now add the following to the list:
    • URBN
    • WMT
    • CHRS
    • MW
    • TLB
    • JNY
  • REITS like nursing homes, hospitals, residential and retail (especially the larger players): I wrote about the healthcare retail REITs on April 26. What makes this so unusual is that real estate (especially development) is worse than flat on its back; it’s nearly comatose. Perhaps its the relatively high yield in REITs compared to low yield available elsewhere that draws buyers to the group. To that list, I now add some of the residential REITs like:
    • AIV
    • BRE
    • EQR
    • AVB
    • ESS
    • ACC
    • AEC
    • ELS
    • HME

Needless to say, I may be early so you should risk nothing more than a little toe. If I am right, there will be many opportunities and signals to get in down the road.

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