Armour Residential (ARR) saw its shares fall more than 13% Monday without any news-driven catalyst. Armour Residential, a REIT, saw its shares dive on close to four times normal volume. While the market was down strongly Monday, Armour still far underperformed its peers to the downside.
The explanation for why appears to be that investors confused the ticker for Armour Residential -- ARR -- with the ticker symbol for American Airlines' (AMR) preferred shares. The American Airlines preferred shares trade under ticker (AAR). Benzinga reported that the spike lower in Armour Residential's shares had been caused by investors seeking to flee American Airlines as all sorts of negative rumors swirled around that company Monday. While Benzinga's comment does not appear to be available on their website, it was distributed on newsfeeds as follows:
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As you can see on a chart with American Airlines (AMR), American Airlines' preferred shares (AAR) and Armour Residential (ARR) below, the rollover in ARR started shortly after the meltdown in American Airlines began. Between noon and 2PM ET, all three entered steep declines.
After the close, Scott Ulm, co-CEO of Armour Residential stated that there was no reason for the stock's volatility Monday and that he was aware of possible confusion over the similar stock symbols.
Unless Mr. Ulm is misleading the market, which I highly doubt, Armour Residential's selloff Monday was unjustified. It would seem Armour should have sold off roughly equal to how far the iShares Real Estate ETF (IYR) sold off. IYR dropped 4.7% Monday, so something in the neighborhood of a 5% decline should have been expected in Armour as well. Instead, Armour fell more than 13%.
For a short-term trader, there is potentially a quick 8-10% upside in Armour as investors become aware of the mistaken price today of its shares. Contrary to the statements of efficient market theorists, the market makes mistakes in pricing quite frequently, and ticker symbols are often a cause of this.
Just recently, Tanzanian Royalty (TRX) was forced to change its ticker symbol from TRE to TRX due to a surge of people shorting Tanzanian's stock thinking they were shorting Sino-Forest (OTC:SNOFF) which trades under the ticker symbol TRE in Canada. Unless the market meltdown continues, Armour Residential should rebound to the mid-6s in coming days, offering nice upside for short-term traders who can profit from the market's momentary confusion. Just don't overstay your welcome -- Armour's nearly 20% yield looks vulnerable, and shares could fall if there were a dividend cut.
Update: I wrote this piece Monday evening. As of Tuesday morning, Armour Residential was trading down an additional 6% to $5.53, while the US iShares Real Estate ETF was down only 2.3%. This despite the fact that Armour Residential's Chairman of the Board purchased 150,000 shares of stock at $6.29 during Monday's plunge -- a near million dollar show of support for Armour's stock.
Additional disclosure: To the best of my knowledge, all information in this article is accurate, reliable, and has been obtained from public sources. However, I present the information "as is" and I will not necessarily update or supplement this article in the future. This information is not a recommendation or solicitation to buy or sell securities, nor am I a registered investment advisor.