By: Jeff Yastine — July 9, 2021
This Stock Is Advertising a 119% Gain in 4 Weeks
When there’s a summer hurricane or tropical storm off the Carolinas, I often spy a curious phenomenon at the beach near my house.
For a few days, the roads fill with surfers, boards strapped to their cars or stacked in the backs of their pickup trucks.
They arrive by the hundreds, drawn by the prospect of surfable waves. Keep in mind, south Florida is hardly a surfing paradise. The islands of the Bahamas a hundred miles or so to the west tend to block big sea swells.
But all that changes when a northerly weather disturbance roils the ocean, and some decent sized waves roll in.
After that, it’s up to the keen-eyed surfers to decide which swells are worth hopping on and which are not.
As investors, we have to make the same kinds of choices. Which trends to hop on and which to avoid.
To help us decide, we focus on identifying pockets of the market showing lots of technical strength. The odds are that’s where we’ll find positions with enough staying power for a great ride and big profits.
These days, Real Estate is one such sector.
If you’ve been reading True Market Insider for a while, you might recall that back in April, I noted an attractive stock from within the sector.
Tanger Factory Outlets (SKT), a REIT, has been up as much as 20% since I wrote about it on April 23.
Guess what? The sector is still going strong.
It’s a “wave” we don’t want to let pass us by.
As you can see from this screenshot of the Sector Relative Strength Matrix, Real Estate is ranked #16 out of the 45 sectors we track here at True Market Insiders. (The “Matrix” is one of the custom tools that comes with TMI’s premium data platform, Sector Prophets Pro.)
(Click any image to enlarge)
So it’s outperforming 29 other sectors. Meaning, there’s plenty of demand from investors for Real Estate stocks.
Likewise, the sector remains on a point-and-figure “Buy” signal on its Bullish Percent Index (BPI) chart.
This tells us the sector is strong over the longer-term.
One look at its Relative Strength (RS) chart -- which tracks how the sector is doing when pitted against the Equal Weighted S&P 500 -- shows that Real Estate is outperforming the wider market.
But the great thing is that -- when it comes to the Real Estate sector -- we have a lot of interesting possibilities. The sector consists of several hundred very different stocks.
For instance, some are real estate development firms and home builders. Those have been the best performers through the pandemic as the Fed moved interest rates to zero, fueling a housing boom that moved millions of people out of the cities and into the suburbs.
The sector also contains a myriad of real estate investment trusts in markets like hospitality, healthcare, offices, and many other types of property ownership, companies that have only recently started gaining strength.
That’s why I’m interested in one such REIT, Outfront Media (OUT).
The company controls nearly 47,000 highway billboards, and 466,000 “transit displays” - those splashy ad signs you see at bus stops and on the walls of subway and rail stations.
In 2019, Outfront Media’s ad displays generated almost $1.8 billion in revenue and net income of $138 million.
Of course, when the pandemic hit last year, advertisers pulled back on their budgets in a big way. Outfront Media’s annual revenue fell 30%.
So I view the stock as a “reopening play” as the economy gets back to normal.
From the look of OUT on our Position Key, it looks like lots of other traders agree.
The blue arrows give us important clues about Outfront Media’s stock. They tell us…
- The Real Estate sector is on Bull Top status. (This means that it’s in an O-column, but above the 70% level on the chart.)
- The sector is on a Buy signal.
- Outfront Media’s stock is strong relative to its peers in the sector.
- The shares are strong when we compare the stock’s performance to that of the Equal Weighted S&P 500.
As you can see from the chart below, Outfront Media’s stock had a nice run already, but it’s still 20% below its pre-pandemic highs of $31.20 (the yellow highlighted line in the chart below).
Notice that huge volume spike (the green arrow)in late June. That’s institutional investors backing up the truck. On that day (June 25) 18.9 million shares were traded. That’s 10x more than OUT’s average daily volume!
So far in 2021 the big hedge funds have bought more than twice as much of the stock than they’ve sold ($789 million versus $362 million).
I think the stock is destined to equal those old highs soon enough.
The catalyst for the next big move in the stock will be Outfront’s upcoming earnings report on August 5.
Analysts expect the company to post a quarterly loss of ($0.12) a share.
But let’s keep in mind that…
- Outfront has bested Wall Street’s earnings forecasts in 2 of the last 3 quarters.
- Millions of Americans who have started traveling again with the ongoing vaccination efforts.
So I think Outfront is likely to once again report better than expected earnings. Maybe a loss in the neighborhood of ($0.06).
Better yet, the second quarter will likely be the company’s last such results “in the red” as we leave the pandemic behind. Analysts expect the company to return to profitability with forecasts of $0.09 a share for the third quarter and $0.26 for the fourth quarter.
So my bet is we’ll see the stock, currently trading around $24, continue to move up in coming weeks.
My one-year target is $36 -- almost 52% higher than the current price - as investors continue to reward the company for its post-pandemic revenue and earnings growth.
But for a more speculative, money-making approach, I would look at buying the December 22.50 Strike Call option at $2.93. It has a delta of 66 with 162 days to expiration.
I think Outfront Media’s stock could reclaim its pre-pandemic highs over the next month, as the August 5 earnings date approaches.
So within 30 days OUT rises 20% to $28.50, the option will be worth $6.42 -- a very nice gain 119%.
If it retraces all the way to its pre-COVID high ($31.20), the option would be worth $8.90 for an even nicer 204% gain.
Have a great Friday!
Guest Editor, True Market Insiders