Did the 'Cramer Effect' Create a Short-Term Buying Opportunity in Chimera?

 |  Includes: AGNC, CIM, CMO, CXS, HTS, MFA, NLY
by: Zvi Bar

On Wednesday, Mad Money host and former fund manager Jim Cramer stated that he feels Chimera Investment Management (NYSE:CIM) is not a good buy, is a sell and instead suggested that investors buy into Annaly Capital Management (NYSE:NLY), now that it announced a large secondary offering.

Chimera is actually related to Annaly. Chimera is managed by FIDAC, a subsidiary of Annaly that acts as management for both REITs, as well as Crexus (NYSE:CXS), a commercial mREIT. Annaly is an agency mREIT, and other similar agency mREITs include American Capital Agency Corp. (NASDAQ:AGNC), Capstead Mortgage Corp. (NYSE:CMO) and Hatteras Financial Corp. (NYSE:HTS). Chimera has a mixed portfolio of non-agency and agency paper, similar to MFA Financial (NYSE:MFA).

It is unclear whether today’s price activity is related to this lightning-quick suggestion, but CIM was down approximately 5% by noon on Thursday, with no other new news. This is a noticeable difference from most other mREITs, which were largely flat to slightly down (none down more than 1% for the first half of the day). In fact, none of the above-mentioned mREITs are down even 20% as much as CIM is at the time of writing.

While this downturn may be related to some other event, it appears as though this sell-off is primarily related to Cramer’s call the night earlier. This now pushes CIM further below book value. Barring any additional information, such as a coming secondary, this appears to indicate a severe reaction to an off the cuff comment, made to show the general opportunity NLY presented through its secondary. If this is the only basis for this move, this uncorrelated downturn in CIM may present a strong opportunity relative to the broader group.

Disclosure: I am long CIM, NLY.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.