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| Own this Stock SNH When Fear Runs Rampant |
| Saturday, 18 August 2007 | ||||||||
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However, the Fed has cut discount interbank rates today and has been throwing billions of dollars at anyone who needs it all in the sake of maintaining liquidity. And when the Fed steps in in a big way, it’s usually time to be a buyer. After all, the Fed was more or less a buyer following the 1987 Crash, the currency crisis, following 9/11, and the bursting of the tech bubble. So now, with the Fed moving in, it’s a pretty good sign the fear sentiment has reached its peak. Why do I think fear is starting to reach its peak? Well, it’s pretty simple. No chart will tell you when fear and uncertainty have reached their peak, but you can keep your eyes open for other signs. Yesterday, I received one of those key signals that fear has almost completely taken over. While the markets were falling, in the midst of the hysteria, I placed a quick call to a discount broker just to ask a quick question. Keep in mind that due to the nature of the financial services industry, the amount of money on the line, and the potentially astronomical legal liabilities, you can usually get service very quickly. But that wasn’t the case yesterday morning. After dialing the customer service number, all I received was this message, “We are currently experiencing an unusually high volume of calls right now, please try again later.” And this was from a major brokerage! There wasn’t even enough room in the queue to put me on hold. I’m sure most of the call volume wasn’t investors wanting to place buy orders either. To me, that’s a good sign we’ve hit the bottom or we’re getting close. However, only in hindsight will we know the exact bottom, but I think we’re pretty close. Up next we’ll see a few more months of nervousness and then it’s back to the good times. But only with a healthy dose of moderation this time. So what should you do now? Well, it’s time to be a buyer. I wouldn’t do it over aggressively depending on your ability to stomach volatility, but there is an opportunity to ride everyone else’s flight to safety.
And when investors want safe, they want to play big trends that have virtually no chance of failing anytime soon. That’s why I always look towards demographic trends when the market starts to get scared. One of my favorite “safety” plays is Senior Housing Properties Trust (SNH:NYSE).SNH is a real estate investment trust (REIT) that invests in nursing homes and assisted living facilities. However, it’s a bit different from a lot of other nursing home companies. You see, SNH knows where the big profits are. It doesn’t rely on large government checks to allow it to keep the doors open. No, SNH focuses on and caters to residents with the personal financial resources to pay their rent themselves. In fact, more than 65% of SNH’s revenues are derived from private sources. After all, earning Medicare and Medicaid funding can be troublesome. And given the current budget deficits, getting a raise is almost impossible. That’s what makes SNH much different from many of the other nursing home companies. Also, don’t let the fact that SNH is a real estate trust have you concerned. Officially, the company “acquires properties primarily for income and secondarily for appreciation potential.” And this is pretty much true. That’s how it’s steadily grown cash flow from operations, dividend payouts, and net income over the past three years and has created a great stock to own when everyone else is looking for safety. In the end, if I’m right and we’re nearing a bottom, SNH is a good buy right now. It’s going to start climbing back with the overall markets. If I’m wrong and we have more downside to go, SNH is a good buy right now because the fearful will hunt stocks like SNH out and plow investment capital into them. Just look at what happened yesterday. The markets fell and SNH was up 7% on the day. That’s the sign of a solid, safe stock to hold when the markets are keeping you up at night. It’s win/win situations like these that really get me excited as an investor. Good investing, Andrew By Andrew Mickey Source : TFN
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