CRE (Long)...

For the first pick, I'm going after Care Investment Trust (CRE). This is a special case. Leave it to me to make my first pick to be something exotic. :-p Ok, here's the situation. It's a REIT that invests in medical properties and mortgages, particularly long-term care and Alzheimer's facilities. I'm bearish on commercial real estate, but I'm willing to suspend that bias here because this is a liquidation case. CRE announced earlier this month that they will be liquidating their trust following their strategic review.

Since this is a liquidation case, it's all about the balance sheet. Right now, CRE is trading at around $7.50 or ~0.64x book value or a market cap of ~$153M (however you prefer to think of it). It's very unlikely in my opinion that this liquidation would occur at anything below book value (presently equivalent to ~$11.65 per share or ~$233M in total equity). This is because CRE has way more in assets than it does in liabilities (it has $322M in assets and $89M in liabilities, with $233M in total equity). So, whether you look at it in terms of share price, book value, or market cap and net equity (ultimately, all three are interrelated, of course), we're looking at a potential 50% gain once the liquidation occurs, within probably the next year or so. Realistically, it's probably more like 6-9 months. Either way, by this time next year, I suspect CRE will be fully liquidated and will have made some good money. Furthermore, note that CRE has been paying a pretty consistent quarterly dividend of $0.17/share, which translates into an annual yield of ~9%

CRE is not optionable, so we're playing with straight common stock here. So, what's our gameplan? As you can see, CRE got mauled by the bears earlier this month and it took some significant technical damage. It broke down hard below the 50-day EMA on very heavy volume, but held at the 200-day EMA for now. It's now hanging around between these two key moving averages. So, the plan for now is to take a small starter position ideally as close to the 200-day EMA as possible (currently ~5% lower around $7.25).

From a strictly technical perspective, this is a chart in trouble. High-volume breakdowns like this usually lead to further downside (it's a bearish fin or wedge set-up). If CRE breaks down further, which is the more likely outcome right now, it must be reevaluated. Likewise, if CRE holds the 200-day EMA and is able to reclaim the 50-day EMA, it will have to be reevaluated. This indecisive set-up is the reason to start small.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.