Saturday, May 2, 2009

CRE trading opportunity in NRO

I didn't do it, but somebody sure did. Neuberger Berman Real Estate Security Income Fund (NRO) has now joined my "Shoulda, Coulda Stocks".

Like Ford Motor (F), I called up a buy screen for NRO a number of times in the past 4 months. This fund invests in securities issued by real estate companies including REITs (common, preferred, convertible, debt) in commercial, industrial, and residential real estate.

There is hardly anything good written about real estate these days, and commercial real estate (CRE) is the number-One pick by just about every analyst, economist, and investors as "the next (big) shoe to drop" that will bring the financial markets down.

I know all that, I read these articles. And when I see the local credit union that lends money to local businesses and real estate development posting $12 million loss (about $5 million it is due to increased regulatory fees) for the 1st quarter, and the mall where the credit union is located has lost two large anchor stores due to bankruptcy, and when I read that the commercial real estate value loss could amount to more than $1 trillion, I feel that "the shoe" will have to be so big that it will cover from horizon to horizon.

Then why was I interested in this stock? As the chart above (weekly) shows, there are some good things going for the stock: possibly a shallow but proper double bottom formation, with the potential buy point at middle of the W plus 10 cents ($2.26); positive divergence in RSI and MACD.

But my interest was mostly contrarian. Since so many people think CRE is the next shoe to drop and advise investors to avoid CRE and REIT stocks like plague, I figured it would be a less crowded (and easier) trade. And while you own the stock, you get monthly dividends (annual rate of 23%).

And so it has been, for now. NRO went from $1.15 when I last called up the screen (late March, I think) to $1.98 on Friday's close, 72% gain.

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