The last time I wrote about BioMed Realty Trust Inc (BMR) I stated, "…I'm not going to be adding to my position right now." I also said to wait on buying the stock because I believed it would get to $18.87 and it is currently at $18.58. Since it is time for my quarterly portfolio change-out I've decided to sell BioMed Realty out of the portfolio and replace it with Citigroup Inc (C) because I believe Citi has a lot more upside to it than BioMed Realty. BioMed Realty operates as a real estate investment trust which owns, acquires, develops, redevelops, leases and manages laboratory and office space for the life sciences industry. On November 6, 2013, BioMed Realty reported third quarter funds from operations of $0.33 per share, which was in-line with the consensus of analysts' estimates. In the past year the company's stock is down 2.77% excluding dividends (up 1.95% including dividends), and is losing to the S&P 500, which has gained 28.14% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to show why I sold BioMed Realty out of the financial sector of my dividend portfolio.
Fundamentals
The company currently trades at a trailing 12-month P/E ratio of 109.29, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 121.44 is currently expensively priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $0.15 per share while the trailing twelve month earnings per share were $0.17. The 1-year PEG ratio (22.82), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 4.79%. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.
Article Date | Price ($) | TTM P/E | Fwd P/E | EPS Next YR ($) |
20Oct13 | 19.58 | 115.18 | 141.88 | 0.14 |
29Nov13 | 18.58 | 109.29 | 121.44 | 0.15 |
Financials
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 5.06% with a payout ratio of 553% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.6%, 1.2% and 2.6%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 5.06% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company from the time I wrote the last article to what it is right now.
Article Date | Yield (%) | Payout TTM (%) | ROA (%) | ROE (%) | ROI (%) |
20Oct13 | 4.8 | 553 | 0.6 | 1.2 | 2.6 |
29Nov13 | 5.06 | 553 | 0.6 | 1.2 | 2.6 |
Technicals
(click to enlarge)
Looking first at the relative strength index chart [RSI] at the top, I see the stock nearing oversold territory with a value of 36.94 with downward trajectory. To confirm the stock is almost oversold, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line with the divergence bars flattening out in height, indicating the bearish pattern is getting tired. As for the stock price itself ($18.58), I'm looking at the 20-day simple moving average to act as resistance (currently at $19.10 and $17.46 to act as support for a risk/reward ratio, which plays out to be -6.02% to 2.8%.
Recent News
- On 06Nov13 the company reported third quarter funds from operations of $0.33.
Conclusion
BioMed Realty and Citi are two different types of financial companies. There are two things that scare me about BioMed Realty for the short-term. The first concern I have is the rising interest rates issue, as interest rates rise, the trust stocks take a good amount of damage and no dividend is going to save you from capital depreciation. The second issue that concerns me is the contraction in future earnings with respect to the trailing twelve month earnings. Just as a due diligence update, last quarter I replaced BB&T (BBT) with BioMed Realty and during the holding period BioMed Realty outperformed BB&T 6.86% to -4.65% excluding dividends. I would say I won on that change-out.
Fundamentally I believe BioMed Realty to be expensively valued based on future earnings, but I also feel that it can drop in price dramatically based on those earnings because they are expected to contract in the next year. Financially I'm giving up quite a bit of dividend but I believe it is okay because I like the capital appreciation opportunity much better with Citi opposed to the depreciation I expect to take place with BioMed Realty. On a technical basis BioMed Realty is nearing oversold territory and we should be seeing a buying opportunity very soon. These are the main reasons I sold BioMed Realty out of my dividend portfolio and I will provide reports on how each is doing against each other as the future progresses.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long C, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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