Famous value investor Warren Buffet once stated, ““Be fearful when others are greedy and greedy when others are fearful”. As the major news conglomerates turn their heads to focus on the volatility in growth stocks over the past week, many investors miss out on opportunities to ride the whip-saw U.S. equity market to its top. Many market participants become skeptical of the high valuation of corporation stock prices in comparison to their book values last week. This prompted a sell off that left the NASDAQ index down 136.21 points to close at 4127.73 on Friday. Some investors took advantage of the stock price dip, using the new lows as an entrance point. While these actions were in line with Buffet’s advice, there are many pockets of the market that are relatively cheaper than the technology sector and offer more opportunities for consistent future growth.
A real estate investment trust (REIT) is an entity that invests in properties and generates revenues from collecting rent and maintaining the value of properties. REITs trade, like stocks, on exchanges and invest in real estate directly through properties or mortgages. The REIT sector has seen returns in excess of 10% this year, Healthcare REITs led the way with a 14 percent return. In light of Macroeconomic uncertainty, investors have demanded safer investment strategies. Healthcare REITS mitigate risk by investing in diversified properties that sustain cash flows in all business cycles. They rent space to assisted living facilities, nursing homes, hospital office buildings and laboratories. As the population ages, the demand for these services rises and so does the value of the buildings housing the operations.
As interest rates rose to close out 2013, REIT stock prices depreciated 19 percent. Harkening back to Buffet’s wisdom, this would have been a great buy opportunity for those brave enough to weather the “storm.” Still, there is a nine percent deficit from earlier in the summer and fall to where these stocks closed last year, which indicates that consumers may not have missed the bargain period. The Wall Street Journal indicated this week that the delayed cuts to Medicare reimbursement voted on by the Senate this March will be a plus for the healthcare sector, particularly the skilled living facilities often owned by REITs.
Another bullish indicator for the sector is the recent urbanization of biotechnology companies. The corporations are shifting to areas with greater access to talent. As a result, you see many office spaces may move to cities that not only have a larger population but also offer amenities including “upper echelon” dining options and fitness centers all within walking distance of campus.
Reiterating the sentiment of investment professionals around the globe, there are still many unknown variables that could positively or negatively impact this strategy. For instance, some analysts believe the Affordable Care Act (ACA) will create more demand for health services and bolster the stock prices of traditional healthcare companies and REITS Others are concerned over the pending reimbursements offered through the program. The result of these hypotheses will be tested in coming months as professional and retail investors eagerly await a signal in one direction or another from this flatlining 2014 market.
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