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Watch Out: Barbarians At The Gate For Health Care REIT (HCN)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Health Care REIT (HCN) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Health Care REIT as such a stock due to the following factors:

  • HCN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $118.4 million.
  • HCN has traded 1.4 million shares today.
  • HCN traded in a range 204.9% of the normal price range with a price range of $1.62.
  • HCN traded above its daily resistance level (quality: 25 days, meaning that the stock is crossing a resistance level set by the last 25 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in HCN with the Ticky from Trade-Ideas. See the FREE profile for HCN NOW at Trade-Ideas

More details on HCN:

Health Care REIT, Inc. is an independent equity real estate investment trust. The firm engages in acquiring, planning, developing, managing, repositioning and monetizing of real estate assets. It primarily invests in the real estate markets of the United States. The stock currently has a dividend yield of 5.7%. HCN has a PE ratio of 73.3. Currently there are 5 analysts that rate Health Care REIT a buy, 2 analysts rate it a sell, and 8 rate it a hold.

The average volume for Health Care REIT has been 1.8 million shares per day over the past 30 days. Health Care REIT has a market cap of $15.5 billion and is part of the financial sector and real estate industry. The stock has a beta of 0.59 and a short float of 4.6% with 4.98 days to cover. Shares are down 0.9% year-to-date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Health Care REIT as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:

  • HCN's very impressive revenue growth greatly exceeded the industry average of 9.6%. Since the same quarter one year prior, revenues leaped by 70.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has slightly increased to $219.17 million or 3.17% when compared to the same quarter last year. Despite an increase in cash flow, HEALTH CARE REIT INC's average is still marginally south of the industry average growth rate of 8.55%.
  • HEALTH CARE REIT INC's earnings per share declined by 44.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, HEALTH CARE REIT INC increased its bottom line by earning $0.46 versus $0.34 in the prior year. For the next year, the market is expecting a contraction of 10.9% in earnings ($0.41 versus $0.46).
  • The gross profit margin for HEALTH CARE REIT INC is rather low; currently it is at 18.93%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.74% significantly trails the industry average.
  • The share price of HEALTH CARE REIT INC has not done very well: it is down 12.42% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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