Making a Speculative Investment in Hatteras Financial: Are Mortgages Making a Comeback?

| About: Hatteras Financial (HTS)

I'm going out on a limb today and adding Hatteras Financial (NYSE:HTS) to the Barchart Van Meerten Speculative portfolio.

Before you all call me crazy let me introduce you to the word of the day: "Underwriting." That's a word that hasn't been visited by mortgage underwriters in quite some time. In the last decade the underwriter would place a mirror under the borrower's nose, and if they could detect a breath the loan was approved.

The world has changed. I'm helping a family member sell a home to an FHA borrower. The home passed title search, inspection and appraisal with flying colors, but FHA is making the borrower jump through so many fiery hoops that their credit approval has taken almost six months. FHA has asked for everything but a note of reference by the borrower's first grade teacher.

Fannie and Freddie are requiring a return to traditional underwriting standards and that's my reason for looking to invest in a leveraged buyer of federally backed mortgages. My pick is Hatteras Financial for a speculative play.

Hatteras Financial Corp. is an externally-managed mortgage real estate investment trust formed in 2007 to invest in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or U.S. government-sponsored entities, such as Fannie Mae, Freddie Mac or Ginnie Mae. Hatteras Financial Corp. is managed and advised by Atlantic Capital Advisors LLC.

The stock has great recent price momentum and has a 100% Barchart technical buy signal. The price hit 16 new highs and is up 6.12% in the last month. The price is around $31.28 which is above its 50-day moving average of 29.66. Looking at the rise of 11.25% in the 50-day moving average in the last 20 trading sessions helps smooth out the momentum. The Relative Strength Index is 77.33% and also rising.

Although Wall Street analysts are not willing to make solid projections, they are looking for a 21.80% revenue growth next year, and nine have published buy reports with five more recommending their long term investors hold their positions.

Investor sentiment is high with the CAPS members on Motley Fool voting 214 to 17 that the stock will outperform the market. The more experienced All Stars are voting 71 to 5 for the same result.

For the long term total return investor the stock has:

  • 14.20% dividend yield
  • 100% Barchart technical buy signal
  • Wall Street brokerage firms publishing positive recommendations
  • Positive investor sentiment

Disclosure: Jim Van Meerten, through Marketocracy Capital Management, has an interest in the stock mentioned in this blog.