When you see a big down move in a stock, pundits say that it’s a good idea to wait a few days to make a potential buy decision. You’ll have a bit more time to do your research and get at least some of the emotional reaction out of the way. Here are a couple of big movers on the TSX today.
NorthWest Healthcare Properties REIT
The Canadian stock market and the Canadian real estate investment trust (REIT) sector has had a dip lately. Since NorthWest Healthcare Properties REIT’s (TSX:NWH.UN) stock momentum has been weaker against its peers and the market, it has fallen even more. So, it could be a good turnaround opportunity seeing that it pays investors to wait with a monthly cash distribution. But let’s explore first why the stock is down about 16% in the last month.
XIU, XRE, and NWH.UN data by YCharts
The policy interest rate staying stubbornly high is one factor. The Bank of Canada hiked the policy interest rate by 0.25% to 4.75% on June 7. Generally, this makes it costlier for mortgage-heavy REITs. For example, the REIT’s trailing 12-month interest expense is about 34% higher than in 2021. And its recent debt-to-asset ratio is about 57% versus 50% at the end of 2021.
On June 21, the global healthcare REIT also announced that it won’t be proceeding with its previously disclosed U.K. joint venture. This may have the market concerned about the slower growth outlook of the REIT. Combining this news with higher interest expenses, NWH.UN stock is weighed down in the current environment.
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SAP data by YCharts
Here are some reasons for the move. First, the stock had a nice run-up from bottoming in May 2022. From the bottom to the peak earlier this year, it climbed as much as 50%, which is a big upside for the consumer staples stock.
Second, at the peak of about $37 per share, the stock’s valuation was getting full. So, there wasn’t much upside left in the near term. For instance, currently, the analyst consensus 12-month price target on the stock is $37.50.
Any negative news could have triggered a selloff in any stock that had little expected near-term upside. Sure enough, it triggered a market selloff in the stock when The Canadian Press reported on June 9 that “the company’s chief executive cautioned negative consumer sentiment could dampen the outlook for the start of its 2024 fiscal year.”
The stock weighed down in the near term could be a buying opportunity over the next few months, as the Saputo chief executive officer was still confident about achieving the company’s targets for the fiscal year that began on April 1. At the stock price of $29.49 at writing, analysts estimate the undervalued stock is discounted by about 21%. It also offers a dividend yield of 2.4% for base returns.
After a big down move in a stock, investors should wait a few days to do their research and get at least some of the emotional reaction out of the way, especially if they are interested in buying the stock.
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Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.