Sun Communities (SUI)

Market Cap: 4.57B
Sector: REITS- Residential
EPS Q/Q: 678%
Sales Q/Q: 38%
Gross Margin: 59.7%
Return on Equity: 11.2%
Dividend Yield: 3.6%

  The Real estate sector has been showing excellent relative strength recently. Going a step further, the Real Estate Investment Trusts are the best performers within the larger group. Investors are favoring their dividend yields and strong growth. This is a rare combination in the stock market. Typically if a company pays a substantial dividend, it does so to entice investors due to its general lack of growth prospects. Whereas with certain REITS you are getting this out-sized dividend payout plus 670% EPS growth Quarter over Quarter in the case of SUI.

Our current market is scrambling for yield and genuine Sales growth. Sun Communities is offering both; last quarter's Sales were a 38% increase over the previous quarter, and the current dividend yield is 3.6%.

Not only are these fundamental growth metrics fantastic, but the chart is offering a very favorable entry currently. I try to focus on stocks that align on all major timeframes, SUI fits this requirement.

SUI Monthly

When looking at the Monthly chart we can see the stock has moved in a very orderly sideways trend for the last 15 months. With the close of March resulted in the highest monthly close ever for SUI and the accompanying volume is the highest for a month ever as well. To me this shows very strong conviction from buyers that the stock is getting ready for another move higher.

When a stock consolidates so tightly after a substantial rally it shows current holders are unwilling to sell their shares and supply remains tight. When supply is tight, new buyers are forced to pay up to get in, which causes higher prices. What I like so much about a lengthy sideways move is that I know the stock is not extended and due a correction. The sideways pause allows the trend to cool off and reset a new support area to launch its next rally from.

The sideways movement also makes managing risk clear. If the breakout fails and the stock rolls over, we know not to hang around hoping for a bottom to form. We can simply move on and look for the next opportunity.

SUI Weekly

Zooming in, the weekly chart shows this sideways digestion. While the stock corrected through time, the long-term 20 and 50 Week moving averages never crossed and are now both sloping higher under price. The MACD line has also reset but has remained above the Zero line suggesting SUI remains in an up-trending environment.

Last week's breakout to new weekly and monthly closing highs gives us our signal to initiate a long position. For risk management purposes we only want to own this stock above the recent pivot low at $66.65. Should that area fail to hold on a pullback we would know the breakout has failed and we would step aside. This sets up as a very favorable risk/reward where we only are risking $5/share or 7%. The measured move from the base alone targets prices near $81. On this modest target we already have a 2-1 risk/reward.

From large bases can come strong rallies. As they say, "the bigger the base, the higher the move in space". SUI has the makings of a tremendous growth stock and it now appears to be the right time to get involved. I'm a believer that the Fundamentals tell you "what" to buy and the Technicals tell you "when" to buy. The Fundamentals are clearly pointing higher for Sun Communities and the Technical picture suggests now is the time for new positions.