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Health Care REIT December 15, 2009

Posted by shaferfinancial in Finance.
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One important item when contemplating the purchase of a value stock is price.  Even though you may remain convinced the company is well run and has a positive future, you need to look at the price compared to other options as well as price compared to earnings.  For example, I believe Apple is a great company and has a bright future.  But at $195 share with a P/E ratio of over 31 I think this stock is a little pricey.  Add in the fact I was looking at it a short time ago at $100 share and I believe now is not the time to purchase this stock.

I have been accumulating Health Care REIT [HCN] for over a decade.  But, at $46 share I think it has become a little pricey to purchase.  Perhaps its inclusion in the S & P 500 has driven up demand and pushed the price up to these levels, or perhaps others have taken a look at its long term dividend payments and liked that, but whatever the reason the price has gotten too high for my comfort level.  For the time being I am holding off purchasing more shares until either the dividend yield increases or the price drops. This is not the first time I have stopped purchasing shares, so I expect to be able to continue to accumulate more sometime in the future.

If you are investing through the DRIP program and get that 5% price break, then you have a little more cushion.  Always watch the price carefully and make sure you are getting the maximum value for your investing $.  Just my 2 cents worth of advice.

*********This in no way should be considered investment advice or a solicitation for purchasing any equity.  It is only the ramblings of an unlicensed individual who happens to invest his money in certain ways.  Never take your advice from the internet!*****************************************

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Comments»

1. QC Watchdog - December 15, 2009

Thanks, good information! I was going to make another purchase this month and wasn’t sure about HCN. Now my thoughts have been confirmed and I can look elsewhere.

2. Sean Carr - December 15, 2009

Looking at overall P/Es, your comments can generally be applied to the S&P 500 as a whole.

3. shaferfinancial - December 16, 2009

Yes you are right Sean. However, I suggest that you look at the P/E 10 for the S & P 500 which gives you a historic viewpoint and takes out the peaks and valleys of earnings. However, since I don’t invest in indexes, but companies, I can take a detailed look at all the metrics including earnings for a company in more detail. I always bounce the current P/E ratio off of the P/E 10 as part of my analysis. In the case of HCN, the current price has driven the yield down below 6% which is historically low. Also, the FFO and the FFD has gotten much closer to the dividend payout telling me there is not much room for an increased dividend at this point. I believe that will change over the next year or two, but for now I find the price point a little high.

4. Sean carr - December 16, 2009

Oh I agree with that Dave. There are many equities that I favor such as HCN that I’m also hesitant to further accumulate more of. The holidays will be a nice time to reformulate a plan for offense and defense in 2010. Too many 3 Sigma events over the last few years to let ones guard down just yet.


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