Thursday, July 30, 2009

Real estate stocks step out of the darkness

If the recession is over, will real estate stocks turn out the lights? The stock market rally off of its March low has been both spectacular and global, leaving disbelievers with an empty punch bowl. What could have been a sucker’s rally is now threatening market bears and sideline-sitters with lost profits and an uncomfortable spell of performance anxiety. Everyone remembers the origin of the U.S.-made global recession – a collapsed housing bubble and a decimated over-leveraged financial system. Accordingly, investors can be forgiven if they find the reflation trade characterized by steaming hot commodities a suspect barometer of economic vitality. But the revitalized TSX financial services sector –up 23% in the last three months – and in particular, the positive trend in real estate stocks signal that the Canadian stock market is closing the door on the bear market.

The S&P/TSX Real Estate Index has been in a Stock Trends Bullish category since the end of June and recorded healthy gains in the last two weeks. Leading the group is Calloway Real Estate Investment Trust (CWT.UN-T), H&R Real Estate Investment Trust (HR.UN-T), and Chartwell Senior Housing Real Estate Investment Trust (CSH.UN-T) - all outpacing the advancing S&P/TSX Composite Index by over 15% in the past three months. Although there remains a general weakness in trading volume among many of the REIT’s listed on the TSX, almost all are currently categorized as Stock Trends Bullish. Boardwalk Real Estate Investment Trust (BEI.UN-T), among this positive trending group, is an attractive technical trade as it moves off its current support level to set up for a stronger finish to the summer.

RioCan Real Estate Investment Trust (REI.UN-T) has stalled since peaking in its spring rally two months ago, a sign of anxiety about earnings struggles that were spelled out in second quarter results released this week. But the technical signs show the units consolidating and perhaps ready to deliver price advances ahead. Economists have tempered their words about economic recovery – an upside surprise for resource driven regions in the country give room for optimism for these funds. Improved real estate conditions sprouted in the spring, a trend that should carry through the rest of the year.

Developers are also enjoying a snappy recovery. Melcor Developments (MRD-T) is up 65% year-to-date after the stock rallied off the 13-week moving average trend line and returned to the $7.50 level last week. Trend support provides investors with timely entry signals because it verifies an existing trend and reaffirms the market’s supply and demand dynamic for an advancing stock. An improving economy will expand earnings expectations and help extend the stock’s price momentum in the latter half of the year.

Stock Trends Bullish indicators have signalled good times for the stocks and units of Canadian commercial contractors, too. Churchill Corp (CUQ-T) and Bird Construction Income Fund (BDT.UN-T) are trading along their intermediate tend line and have the potential to rally above their spring highs with the improving economy. Churchill’s stock is up 48% in 2009, and may be cued up to advance ahead of its second quarter results to be announced in a couple of weeks. A build up of positive news in the sector, including the strength of SNC-Lavalin Group (SNC-T), could help these stocks keep pace with the rally in commodity stocks.

Post a Comment