Hot property trends
What the share-price charts say about Stockland, Goodman Group, Dexus, and GPT.
With Australian interest rates heading lower, focus has again turned to companies that will benefit from an environment of lower rates. While the big four banks and Telstra dominate the headlines, less considered on ASX are Australian Real Estate Investment Trusts (AREITs).
Generally speaking, AREITs will benefit from low interest rates. They improve their cost of borrowing and also increase demand for, and therefore the value of, properties.
AREITs have had a phenomenal run during the past year and are therefore not as attractive as they were from a valuation perspective. However, the trend in interest rates could see some continued interest in these stocks as demand continues to support the underlying unit prices.
As many investors will know, AREITs suffered particularly badly during the Global Financial Crisis as interest rates were much higher and debt became an issue.
With them having a great run in the current rate environment, we look at the charts of four well-known AREITs to see how market demand and sentiment is looking for the rest of the year. Will their runs continue or are we seeing some early danger signs?
We have chosen Goodman Group (GMG) in industrial property, Stockland (SGP) in residential, and Dexus Property Group (DXS) and GPT Group (GPT) in commercial property. Because of recent corporate activity in Westfield Group, we have left that off the list for this month. We like to have much more charting history when performing technical analysis of a stock.
(Editor's note: Do not read the following ideas as stock recommendations. Do further research of your own or talk to a financial adviser before acting on themes in this article).
This AREIT develops and invests in industrial property, as well as providing property services and funds management. Equity analysts were pleasantly surprised by the interim result in February but by then the market had already pushed the stock to a very high level. Although Goodman Group is doing a good job and has room to grow, the valuation was too stretched and the price actually sold off afterwards.
At the moment the charts tell us that the market is a little undecided as to whether to push Goodman higher or not. On the run up to the February results we can see that the shares were overbought on the Relative Strength Index (RSI) (the bottom red line on the chart). By dropping back, it has provided us with a sell signal (circled). The shares could not breach the uptrend line though, so this means we cannot be too negative on Goodman's price action just yet.
The recent retest and failure of the February high is a concern, but I cannot be too bearish as long as Goodman continues to hug the uptrend line on this chart. Provided the shares do not fall through this support level, there is a good chance they will continue to head higher over coming months.
Stockland develops, owns and manages retirement villages, residential communities, retail centres and other assets. As one can imagine, with residential property values having climbed for the past couple of years, so too has the price of Stockland. Although housing is a small part of its earnings, there is concern around the lumpiness in property price growth between the different states.
Strangely enough, although Stockland does not seem as expensive as Goodman (depending on who you talk to), the chart for Stockland is looking slightly more negative in comparison.
Like Goodman, Stockland suffered a dip in its share price during February. However, compared to Goodman, Stockland has struggled a little more to recover. Unlike Goodman, the stock is not hugging the uptrend line yet and given its recent negative price action, we would assume Stockland would ease back towards that for support.
We therefore have a price target near $4.20 and provided it can hold those levels and valuations are still higher, that may well be an opportunity to buy into Stockland.
Dexus Property Group
Dexus owns, manages and develops commercial property. Like most AREITs, Dexus enjoyed a decent rally earlier this year on the back of increasing expectations of an interest rate cut. It has fallen over the past several weeks but not in a way that concerns us.
First, the stock was not very overbought to start with earlier in the year. The subsequent sell-off was on lower volume, which means the bears have so far been unable to take hold. This downward price action was also well within the range of those explosive few weeks in January and February.
This again shows that even with a longer period of time at their disposal, the bears have been unable to push the stock back to where it started the year. We also have Dexus sitting right on the uptrend line, indicating some support at current levels.
GPT Property Group
GPT is the owner and manager of a portfolio of Australian office, retail and business park assets. It also manages two funds. For some investors, the current growth profile is not very strong and the company would most likely need to grow through acquisition rather than organically.
The chart is similar to the other companies we have looked at here, in that it has failed to push higher during the past several weeks. However, this recent breather in the share price is much flatter than the others and therefore is more bullish.
Recent news included the CEO stepping down. Some investors are speculating this may lead to some merger and acquisition activity in GPT and this could perhaps be the reason for the robustness in its unit price.
Of course, it is a dangerous game to hold stocks on the hope of a takeover or other corporate activity. In the likelihood that nothing occurs and GPT disappoints on the growth side, investors will need to keep an eye on the uptrend line and ensure it does not get broken.
In looking at each of these stocks, the common theme is a price that has risen quite sustainably over the past few years. None of the stocks are cheap any more, but they are all respecting their uptrend lines. Looking back at how each traded before they were decimated in the GFC, I can see that all were trending nicely before breaking the neat uptrend line at some stage.
There may be further months or years of upside ahead, but the key takeaway is simple: you need to beware of any break of the uptrend in the unit price. We can use charting skills to finesse your entry points, but you should pay attention to the alarm bells when they tell us that the trend is over.
About the author
Michael Gable is managing director of Fairmont Equities, a share advisory firm. He is also a media commentator and board member of the Australian Technical Analysts Association.
The ASX Charting Library provides a wealth of free material for beginners through to advanced chartists.