Alexandria Real Estate Equities (NYSE:ARE) is the only REIT leasing its properties almost exclusively to the life sciences industry. It counts as tenants pharmaceutical majors such as Bristol-Myers Squibb (NYSE:BMY), Eli Lilly (NYSE:LLY) and Moderna (NASDAQ:MRNA). The company provides the laboratory space these companies need to research and develop the drugs they sell to billions of patients worldwide.
As a results of Alexandria ‘s mission-critical position, the company’s business results tend to be very consistent and predictable. Rent is the last expense its tenants are going to cut in case the economy sours. In fact, the pandemic was a blessing for Alexandria, accelerating its revenue growth rate to over 23% in 2020.
In 2021, however, sales growth returned back to its pre-pandemic normal in the mid-teens. The market quickly went back to its old habits of chasing the latest fad for a quick buck. As a result, ARE fell from a record high of $225 in late-December, 2021, to as low as $130 by mid-June, 2022. Yesterday, the stock closed in the vicinity of $156 as it attempts to recover from that 42% crash. Can the bulls be relied on to keep pushing the price higher from here? Let’s see if the chart below can help us answer that question.
The chart puts Alexandria ‘s entire post-2009 uptrend into Elliott Wave perspective. Its structure resembles a five-wave impulse, whose fifth and final wave is still missing. Waves (1)-through-(4), however, are already in place and two lower degrees of the pattern can be seen within wave (3). That 42% crash we mentioned earlier fits into the position of wave (4). It is labeled as a simple yet sharp a-b-c zigzag correction.
If this count is correct, we can expect more strength from Alexandria stock as its uptrend resumes in wave (5). Fifth waves exceed the top of the third wave in 99 out of 100 times. With that in mind, bullish targets above $225 seem within reach. On the other hand, a three-wave correction follows every impulse. Instead of buying “the breakout” around $230-$240, investors would do well to take their profits and run. The anticipated decline has the potential to drag Alexandria back to the support of wave (4) near $130 a share.