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Word that the U.S. Federal Reserve may start tapering its monetary easing policy soon has caused some stocks to hit rough patches. (J. Scott Applewhite/AP)
Word that the U.S. Federal Reserve may start tapering its monetary easing policy soon has caused some stocks to hit rough patches. (J. Scott Applewhite/AP)

Schizas' Mailbag

Why you should wait for direction on Omega Add to ...

Hi Lou: I was considering purchasing a health care stock and would like your views on Omega Healthcare. They appear to operate like a Canadian REIT. Bruce

Thanks for the assignment. Omega Healthcare Investors Inc., owns or holds mortgages on 477 healthcare facilities located in 33 states. The skilled nursing, assisted living and specialty hospitals are contracted to 46 third-party healthcare operating companies, which are responsible for day-to-day patient care. Skilled nursing looks like code for long-term care for that portion of the aging population that requires around-the-clock care. The company earns the bulk of their income from the 450 skilled nursing properties in their portfolio.

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OHI has enjoyed a great run, but has hit some rough waters on comments made by U.S. Federal Reserve Chairman Ben Bernanke. On May 22, 2013, Bernanke intoned that the Fed might start tapering off their latest round of monetary easing, which has seen the central bank buying $85-billion (U.S.) a month of treasuries and mortgage-backed securities.

A study of the charts will provide further evidence that you can use in deciding if OHI is suitable for your portfolio.

The three-year chart provides a textbook example of a stock getting sideswiped by an externality. But keep in mind that most of the retreat has happened since the Fed lit the fuse on May 22. Capital preservation is not an option in asset management, it is required. The MACD and the RSI both generated sell signals, which the informed investor would have taken advantage of. The stock did catch a bounce off of a thin ledge of support near $28 in late June.

The six-month chart provides a close-up of the sell signals generated by the momentum indicators in May and the buy in June. Currently the MACD and the RSI are neutral at best. At this point the market is waiting for visibility as to the direction of Fed policy regarding asset purchases. I would suggest that it would be prudent to wait for a better sense of direction before putting your capital at risk.

Make it a profitable day and happy capitalism!

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