Monday, November 17, 2008

COMMENTS: REITS , CB & L, FR, LRY and AMB; Re-start buying common stocks

Two more REITS reduced their dividend payments today, AMB Property (AMB) and Liberty Property Trust (LRY).BMarketWatch Liberty reduced its dividend from $2.5 to $1.9 to conserve cash.   MarketWatch   The REITs are not able to sell preferred stock to raise capital, with many of the seasoned preferred issues now yielding over 20%, with 15 to 20% yields being almost routine.  Since the stocks have fallen to decade or more lows, selling new stock has to be an unappealing option and selling property in a down market is likewise undesirable.  I suspect, however, that many REITS represent good values now provided they can survive more or less intact until the economy recovers.  And that is the key issue now.  So, I am trying to focus on those that have already reduced their dividends and have relatively decent credit lines in place with little or no debt maturing before the end of 2010.    CB & L Properties does not fall into that category.

I noticed that CB & L Properties, owner of retail malls including Cool Springs near my residence as well as other malls like Rivergate in the Nashville metropolitan area, hit an all time low today, falling to below 4.  For someone interested in a debt ladened owner of properties leased to retailers, CB & L is worth a look for a nibble, and I mean by a nibble a 50 share purchase, understanding that its large amount of debt could send it into the proverbial financial toilet with a prolonged recession.    A near death experience can provide a long term opportunity however. So it is kind of  like it is going to be a ten bagger or you lose all your money, one or the other.   CB & L has been falling fast on heavy volume for several days.  Some of that selling may be forced, particularly by leveraged closed end funds that own a lot of shares. CBL: Major Holders for C B L & ASSOC PRP - Yahoo! Finance (see prior post: paragraph 3 in REITS: FIRST INDUSTRIAL AND COUSINS PROPERTIES)  Other selling may be selling from bulls throwing in the towel or from fear born from legitimate concerns about CB & L's debt and its refinancing during this difficult period, a fear stoked by the soon to expire General Growth  Properties (GGP is not dead yet, but the priest has been called for last rites).

When analyst's start downgrading stocks after they have gone into the crapper, then maybe the end is near.  I noticed that BMO Capital Markets just downgraded First Industrial from outperform to neutral after the stock had already fallen from 30 to 6 or so.  Reuters 
Late but never sorry. I already know that times are tough for the REITs.  One of the funniest examples of a downgrade this year after a stock had melted into oblivion (funny only if you did not own it or follow the advice) came from Goldman Sachs downgrading Lehman from a buy shortly before Lehman's bankruptcy, MarketWatch 

I suspended my stock purchases for a few days to assess my strategy.  As I have mentioned, it is hard for me to envision a durable stock market rally when the VIX is at historically high levels. From past experience, I understand that the market may start to move up while the news remains bad.  Thus, I will adjust my strategy now to reflect those two beliefs.  I am going to start back buying common stocks but only to the extent of my cash flow from other investments.  Again, I will not be taking anywhere near a full position in any stock.  Instead, I will be spacing my investments as cash is received, and then I will buy no more than 50 shares of a stock where I normally would hold 200 shares.  I intend to let a few bonds mature next year and use the proceeds to buy common stocks.   If I am more circumspect about the company, then I will buy 25 to 30 share lots rather than 50 shares, maxing out at 100 shares.  For speculative positions, like the common stocks of REITs under severe pressure like FR or CBL, I will limit myself to 50 shares as my total position, and hope to do well by the sheer number of positions, assuming one or two may fail but three may result in superior returns from currently depressed levels.   If I bought CBL today at less than 4, I would hold for a long term capital gain or sell at a loss within 12 months.  So I will give it at least 11 months and a few days to work out.  I have others that I will add to this list later.    I also have a list now of up to  50 small cap stocks that I will start to buy.  I will also reinvest dividends for most of the common stocks that I own until I receive a signal from my VIX allocation model during the next bull market to sell stock and to raise cash levels to 20% in two 10% increments (timed by what I previously called the Transition phase VIX warning signals of a pending start to a bear market), at which time I will cease reinvestment and sell some positions starting with the higher cost shares, easing out as I eased into them.   Since I am getting to old for these meltdowns, I may raise my bond allocation by selling stocks in addition to raising cash next time. 

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