The following article summarizes the reasons why commercial real estate is going to tank even more. Commercial real estate investment trusts have already been smashed. Based on a survey of professionals, a recently issued report from Price Waterhouse and the Urban Land Institute predicted negative returns in 2009 and a slow recovery during 2010. The stock prices of many REITs owning office buildings have already been cut by more than 50% over the past year, including those focused on prestige properties in upscale markets like New York, Washington, San Francisco and Boston, including S. L. Green (SLG), Boston Properties (BXP) and Vornado (VNO). For example, Boston Properties hit a 52 week high at 194 and recently was trading in the mid 60s.
Commercial real estate brokers, like C.B. Richard Ellis (CBG) traded at around 41 in July 2007 and it is now fetching less than 6. When you see that kind of carnage, you would expect the worse is over, at least for CBG, but it still reacts negatively when the market becomes spooked. There are not too many more points to zero for that one, so it may be worth a 50 share nibble soon, with at least a five year holding period expected now for any purchase at the current depressed level, knowing full well that more bad news is to come. With my risk profile, I can take a gander over the next few days, do some more research on CBG, and possibly buy some using $200 to $250 and then just try to be very very patient. I elected not to do it today however with CBG down to 5.5.
At around 2:30, C.S.T., it was obvious that this was going to be a bad day so I entered a few odd lot limit orders for blue chips at more than 50 cents under the then existing market prices and they were all filled. My strategy, which seems appropriate for me under these market conditions, is to buy just a tad and then buy more only if the stock continues to fall. This is hard to do on a day like today.
Today, I bought Ingersoll Rand at 18.50, and the stock was at 19.2 when I placed that order. It blew through my odd lot limit order at 18.5, filling it on its way down to a low of 18.2, then the stock recovered some to finish down 7% to around 18.78. In February 2008, and I just checked this, I sold out my position at over 41. At my current price, the dividend yield is around 3.9%. IR did issue a warning recently. MarketWatch IR said at that time it expected earnings of $3.35 to $3.55 this year, which may be optimistic now with the abrupt slowdown, but at my price today I am only paying around a 5 P/E for a pretty solid industrial company. IR: Analyst Estimates IR just completed an acquisition of Trane. I read again all the recent reports that I have including the ones from Value Line, Morningstar and S & P as well as all of the reports for the next one discussed below.
I also placed an order to buy 50 Teco Energy, an electric utility operating in Tampa, at 13 and it filled, in similar fashion to the Ingersoll order. It was placed at a price well below the market with 30 minutes to go and just blew through it to 12.82 before recovering to 13.32. At my cost, it has about a 6.15% yield.
I also added to my recent initiation of an Intel position by buying an odd lot at 14.46. see prior post: INTEL This blue chip company is now slightly below its low seen in 2000 and 2002 at around 14.8. The yield for this cash rich company is coming closer to 4%.
Lastly, I bought 100 shares of an Entergy Louisiana First Mortgage Bond (EHL) at 22.75. Entergy (ETR) is a very large electric utility operating in the south, similar to Southern (SO). This is a link to ENTERGY'S profile.
The service areas are Arkansas, Mississippi and Louisiana. In Louisiana, its subsidiary used to be known as Louisiana Power & Light. This security is basically a First Mortgage on all of Entergy Louisiana's assets. www.sec.gov It has a separate sub for New Orleans based on a review of its SEC 10-Q filing. www.sec.gov The First Mortgage Bond that I bought today has a coupon of 7.6%, a par value of $25 and it matures on 4/1/2032 unless redeemed earlier at par and accrued interest. It pays interest quarterly and it has already gone ex-interest for the September quarter. At my cost, the effective yield is 8.35% for a security that is a First Mortgage. I also considered buying today another First Mortgage bond from Entergy Mississippi (EMO), www.sec.gov, that has a lower coupon at 7.2% and was selling at a slightly higher price than ETR.
I also mentioned in a prior post that I would be adding to a mutual fund, at the bare minimum allowed, on bad days and this certainly qualified, so I added to Janus Balanced. Buy High & Sell Low /Retrospective on the Good & Bad
I can only say that, if we have another waterfall tomorrow, I will probably be placing some odd lot orders for dividend paying blue chips well below the then existing market at around 2:30, like today, but I will not be spending too much of my cash in any given day. When you get a serious down move like today, with most of it toward the close, I also believe that it has to do with forced redemptions pursuant to margin calls, to individuals and to hedge funds particularly, and mutual fund sales to meet redemptions, and I suspect that individuals are throwing in the towel big time this month. So, for many, doing what I do is not an option. I just view this as another opportunity for someone who has the stomach for it and you never get use to bear markets as bad as this one. A player still has to play the game.
In these blogs, I am acting as an unpaid financial journalist and an occasional ornery political commentator. This is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In these blogs, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always view the prospectus for an investment like EHL before considering making an investment. The same is true for Trust Certificates, preferred stocks, bonds and bond like investments.
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