Trend profile: FirstService Corp.

Trend: Canadian real estate stocks have been in the sunshine for some time now, enjoying a solidly bullish trend line ride over the past two years and outperforming the broader, slipping, TSX market in recent months. Canadian REITs are popular, and capital is cheap for real estate portfolio growth. If there is uncertainty about the fundamentals that drive important resource-based sectors in the Canadian economy, it’s not casting a shadow on this asset class.

 

Although being in the sun for a long time can lead to a burn – something investors looking at the sector now might interpret as reason to stand clear of new exposure to an overheated asset – perhaps there’s still time to work on that tan. A spike in trading volume of the iShares S&P/TSX Capped REIT index fund (XRE) last week suggests investors feel safe in these bullish trending issues.

 

Top performing REITs over the past three months are RioCan Real Estate Investment (REI.UN), Canadian Apartment Properties investment Trust (CAP.UN), Primaris Retail REIT (PMZ.UN), Boardwalk REIT (BEI.UN), and Dundee REIT (D.UN). Recent deals, totalling $1.75-billion, by Dundee and other Canadian REITs to acquire new properties highlights the sweet spot this sector now enjoys: low real interest rates and solid demand for commercial space amid a relatively strong domestic economy. Unless there is a significant change in the interest rate picture, look for the sector’s relative performance to carry through the quarter.  

 

The Trade: Other options beyond REITs are available for investors interested in topping-up their exposure to real estate. FirstService Corp. is a global real estate services firm that now generates about $2-billion in annual revenue managing commercial and residential properties. While certainly not enjoying some of the investor benefits conferred by a REIT, FirstService is a stock that should retain and add investor value in the current real estate environment, and may be primed for a rally ahead.

 

Although still in a bullish long-term trend, FirstService’s share price movement has diverged from the largely strong relative performance of real estate issues since the spring. Dropping from a peak near $39, its downward drift finally hit a positive traction point at the primary trend line last week, the 40-week moving average. The stock led the sector with a 5.2 per cent gain and a significant uptick in trading volume.

 

Trend traders should be interested in this market movement, since technical support here, in the context of the sector’s relative strength, could trigger a proper rebound for this Stock Trends Weak Bullish stock. The stock’s short interest levels in advance of the recent period indicate that bearish-minded players in the stock could be squeezed. The company is about to release its second quarter results, so last week’s technical strength may anticipate more positive moves for the share price ahead. 

 

 

The Upside: Look for the stock to quickly regain the $35 level, although a 20 per cent move back to the spring peak would make a tidy objective for a time horizon beyond this quarter.

 

The Downside: Disappointment lurks with this moment, too, so drops below the buttressing primary trend line would sway toward a failed trade. Exit if the share price drops below $31.