A Growth Sector in a Stagnant Economy

Sure, U.S. Corporations and politicians pandered to Baby Boomers in their peak spending years. But don’t expect them to stop just because Boomers are trading in their wheels for walkers.

Baby Boomers will continue to spend money on essentials, like housing and healthcare. And that’s creating a lucrative opportunity for long-term care facilities and healthcare-focused REITs (real estate investment trusts).

We highlighted this trend in a recent issue of Boom & Bust. And the healthcare REIT we recommended is enjoying double-digit gains.

As the story continues to unfold, it’s becoming clear that real estate investors are hungry for properties aimed at the senior community. And they’re willing to pay a pretty penny as they forecast growing demand and high occupancy rates for healthcare-focused housing.

In August, Health Care REIT Inc. (NYSE: HCN) bought Sunrise Senior Living Inc. (NYSE: SRZ) – a long-term care facility operator.

The most interesting thing about this acquisition is what Health Care REIT was willing to pay for Sunrise. They ponied up a record 87% premium over Sunrise’s valuation.

What did that mean for those holding Sunrise’s stock?

Well, they went to bed on August 21 owning a $9 stock… and woke up the next day owning a $14 stock. Not bad for a good night’s sleep.

As the senior healthcare market continues to develop it is likely more mergers and acquisitions will take place. Brookdale Senior Living Inc. (NYSE: BKD) has been rumored as one potential takeover target as its stock is more favorably priced than its peers’.

Here’s a look at Brookdale’s stock:

 Brookdale's stock

 

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I marked a horizontal red line at $27 because this is a major resistance level. I’ve watch Brookdale approach, but fail to get above, that level three times since 2008. This makes me hesitant to buy Brookdale at the moment, at this price (currently $24).

But here’s what I would do…

I’m waiting for BKD to break above $27 – to go as high as $30. Then, I’d like to see the stock drop back down and “re-test” the $27 level. If $27 “holds” and the stock starts to move higher again… that’s when I’m a buyer.

The long-term prospects of this industry are impressive. It’s one of few growth sectors in an otherwise stagnant economy and I expect healthcare REITs and stocks to do quite well over the next several years.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.