Two REITs worth note right now are Maguire Properties (MPG) and Glimcher Realty (GRT). During my nightly analysis of the markets, I often focus closely on stocks making new highs and new lows. The reason: Stocks that are reaching extremes are often emblematic of changes that are taking place well below the surface of the broad market, and I highlight them to bring these issues to subscribers’ attention.

One of my favorite independent analysts is corporate anthropologist Jim Williams, of the Williams Inference Center in Massachusetts. Jim has a genius for the observation, collection and interpretation of “anomalies,” which he defines as irregularities and surprises that provide clues to the long-term direction of social and business behavior. 

He says that anomalies are the early indicators of change, and may be easily missed in the morass of obsolete and meaningless data with which we are surrounded. 

One of the metaphors that he uses is the concept of “down cards” in poker. Every player knows what the up cards are; the direction of the game is shaped by cards that are on the table, but whose values are hidden. 

Jim says it’s our job as investment analysts to determine the value of the down cards during any given cycle before anyone else. The reason, of course, is that when they are inevitably flipped over they’ll reveal a future that has been pre-ordained since the hand was dealt. 

So when you see me talking about stocks that are making surprising new highs or lows, what I’m doing is musing aloud about whether these are “down cards” that reveal an important anomaly, or clue, about current conditions.

This point came up most emphatically this week in regard to my reflections two weeks ago on the strong moves in “broken” REITs like Maguire Properties (MPG) and Glimcher Realty (GRT). These were real estate investment trusts that are down 80% to 90% from their highs of three to four years ago, have flat-lined for the past year, and have balance sheets that would make a drunken sailor blush with embarrassment. Most have lost many properties to default and are not paying on their preferred or convertible debt, much less their dividends.

On March 9, I wrote: “Maguire is a REIT that has a negative value for every profit measure that you can imagine, high levels of debt, obviously does not pay a dividend, and nurses a reputation as lousy now as it was awesome three years ago. This is what you would normally call a “risky” stock. But is it really so risky? Wasn’t it more risky three years ago, at $42, than it is today at $2.50? Shares have stabilized in the mid-$2 area and now appear ready to challenge the $3-$4 area. ….  I can’t give you a single comforting reason to buy, other than that they are much-hated, cheap and on the move.”

This is absolutely what I mean by an anomaly. It makes no sense that a company like this is not in bankruptcy — so it makes even less sense that it could move up out of a long base. But when stocks are sold out after long spans of disappointing all of their former supporters, strange things can happen. And after a truly miserable earnings report on Monday punctuated by one ray of sunlight (banks extended some loans), the stock rose 33% on Tuesday.

One subscriber wrote to say he made over $100,000 on the calls yesterday, which was cool. They were certainly super-cheap. And another wrote: “Great call on MPG! I bought 10,000 shares two weeks ago at $2.50 and have a 41% return so far. Thanks for the great recommendation. I bought some of GRT and PDM as well and those are holding their own.”

This is a long way of saying that all of the ideas that I present to you, even if not in a portfolio context, are intended for you to either consider for your portfolios at your discretion, or to put in your memory banks as an anomaly to be matched with other clues in the future.

For more ideas along these lines, check out my Trader’s Advantage newsletter.

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