Brookdale Senior Living [BKD: NYSE] – To buy or not to buy?

Brookdale Senior Living [BKD: NYSE] – To buy or not to buy?

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  • I was contemplating buying this stock since it was on my initial list of stocks. However I came across this technical indicator analysis article on yahoo .  “Brookdale senior living breached its 50 day moving average in a bearish manner”
  • This made me hesitate. However on the same page this stock is highlighted as a undervalued possible momentum play. In my view undervalued is always good and any stock for which you can use momentum in your favor is a great pick.
  • This stock has taken a beating over the last year. Some of the items mentioned as possible reasons are high leverage, high operating cost, and market maybe expecting a decline in growth for this stock. Reference article
  • 69% of debt supporting its enterprise value. Seemed quite high and not a company I may want to be holding if interest rates go up next year.
  • Barron’s has recently recommended this stock and has an estimated  growth forecast of 30% over the next year. You can find the details here : Barron’s Article
  • The stock has the following analyst ratings: 2 hold, 1 buy and 4 strong buy
  • Its earnings is being reported on Nov 2nd of 2016. The earnings report can at times cause volatility in the stock.
  • Puts for Nov 18th  with a strike price of $14 are selling at 33 cents. So I can hedge for under $160 if I am worried about earnings volatility.
  • This stock has been in a downward spiral since early 2015
  • From the technical event lookup service provided by TD. Support for this stock is found at: $15.50  and resistance found at: $16.91.
  • This stock is a top pick of one of the Canadian Bank’s analysts in this sector. A top pick is the best idea they have in that sector.
  • This stock has a base case price target of $25 USD. Currently trading at $15.62 USD. That is a potential return of almost 60%. Maybe worth it enough to stomach the high level of debt this company has. The worst case scenario is about 30% loss based on simulation.

I would consider this stock a bit on the high risk side, however I am going to be investing a portion of my portfolio  for the following reasons. I like the sector, I believe the stock’s downward spiral will stabilize and it has the potential to realize the highlighted returns due to increases in operational efficiency, and I respect the analyst who has set the target price and am willing to invest based on his recommendation. Therefore the decision is to buy !

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