HCP Could Gain Energy

Earlier this week, I talked about Omega Healthcare Investors (OHI), a health care REIT. First, I believe that in the long-term, the health care sector is likely to stay strong. Second, bond yields are softening, again, giving REIT dividends a healthy glow. With those thoughts in mind, I checked out another health care REIT, HCP (HCP). HCP's price chart is promising, and its fundamentals are sturdy. The Long Beach, Calif.-based company formed in 1985. HCP invests in senior housing, life science, medical office, hospital and skilled nursing properties. The fund also engages in acquisition, development, leasing, selling and managing of health care real estate and provides mortgage and other financing to health care providers. In its recent earnings report, HCP improved earnings per share by 10.9%, compared to the same quarter, last year. Added to that, the company has shown increased EPS growth for every quarter for the past two years -- and that trend is expected to continue. HCP also improved its bottom line in the last fiscal year by earning $1.97 vs. $1.80 in the prior year. HCP's net income growth exceeded the S&P 500 and the REIT industry average. It's net income increased by 21.6%, rising from $241.03 million to $293.10 million. HCP's current price-to-earnings ratio comes in at 19.36 times earnings, a substantial discount to its peers. Finally, the company pays a hale and hearty annual dividend of $2.18, now yielding 5.74%. Let's turn to HCP's daily chart. The stock opened 2013 at $45.75 (not shown), and rose steeply from there to an all-time closing highs on May 21, to $55.28. It sank from there -- as did most high-yielding equities -- on the back of rising bond yields. Indeed, price etched an orderly, six-month downtrend on its chart until December, when it found price support from 2010 highs at $36. In December, HCP consolidated in a tight price range between approximately $35.80 and $36.80. Note an interesting development, however, that I discussed in my last article: the 14-day relative strength index rises in a bullish divergence in December, beginning to trend higher (black arrows), while HCP's price steps sideways, consolidating. We can say the RSI diverges from price. The operative theory is that many times, price will soon follow the indicator -- as it did in this case. We can also see that the moving average convergence/divergence (MACD), a trend-following indicator, confirms the RSI's move -- another positive. HCP broke above its December consolidation during the first week of January. Thursday, the stock closed at $38.35, just above its 20-day simple moving average (red on this chart) and 50-day SMA (green). We recognize the 200-day SMA (black) trading above price at $41.58. While this line could offer resistance when and if HCP rises into it, the stock still has room to run before that potential event. Just so, I will purchase one-half my intended position in HCP in an entry window between $37.60 and $38.70. My initial stop (trail) is placed at $37.40. When (or if) price closes above $41.60, I will add my remaining shares. My initial profit target sits near October (2013) highs, at $43.25. As usual, with a position that collects vigorous dividends, I intend to hold my position in HCP as long as it remains in a healthy uptrend on its daily chart.

HCP Could Gain Energy

This health care REIT has a promising price chart along with sturdy fundamentals.

Columnist Conversation

The INDU and the DIA

Webinar Time After the Close Thursday

Twitter Spaces at 2pm ET

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.