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It has been a rough few weeks for most investors and an even tougher year for some shareholders in mortgage REIT stocks. There has been a perfect storm of forces that seem to be working against the mREIT stocks.

However, there might be some light at the end of the tunnel in just a few weeks thanks to the "January Effect." This is known to occur each year, particularly with small and mid-cap stocks that have seen declines. Stocks that fit this profile typically see heavy selling in the last few weeks of the year as investors sell shares they have losses in, so that they can offset gains in other stocks and harvest tax losses. This process pushes already hard-hit stocks even lower, and that can create a great buying opportunity at this time of year. If you buy the right stocks now, they are likely to rebound substantially in January because they won't be under tax-loss selling pressure. Some investors who sold in 2011 will be buying in January to re-establish positions in companies they like.

While the mortgage REIT sector still faces some challenges, the yields and potential for higher prices make these stocks attractive rebound candidates. The crisis in Europe is likely to keep the markets volatile, so I would wait for correction days to buy. Here are a number of mREIT stocks that might benefit from the January Effect:

Chimera Investment Corporation (NYSE:CIM) is a real estate investment trust (REIT) that invests in residential mortgage-backed securities and both commercial and residential mortgage loans. With a yield of about 20%, and a share price below book value, this looks like a great buying opportunity. Insiders have been buying shares in the past couple of weeks, see that here. This stock is trading well off the 52-week high and it could be poised for a large percentage rebound compared to the other stocks here.

Here are some key points for CIM:

  • Current share price: $2.57
  • The 52 week range is $2.38 to $4.36
  • Earnings estimates for 2011: 57 cents per share
  • Earnings estimates for 2012: 47 cents per share
  • Annual dividend: 52 cents per share which yields 19.8%
  • Book value: $3.27 per share

Annaly Capital Management, Inc., (NYSE:NLY) is a mortgage real estate investment trust company based in New York. Annaly pays a dividend of about $2.40 annually which is equivalent to a yield of around 15%. Cramer has given this stock a buy rating and it is the only mREIT stock he seems to like. This stock could see a smaller rebound in January.

Here are some key points for NLY:

  • Current share price: $15.80
  • The 52 week range is $14.05 to $18.79.
  • Earnings estimates for 2011: $2.38 per share
  • Earnings estimates for 2012: $2.31 per share
  • Annual dividend: $2.40 per share which yields 15.1%
  • Book value: $16.22 per share

American Capital Agency (NASDAQ:AGNC) is a real estate investment trust that invests in residential mortgage-backed securities and both commercial and residential mortgage loans. On Tuesday, October 4, 2011, this stock plunged to $22.84 on heavy volume. It has seen a major rebound off the lows, but could firm up even more in January.

Here are some key points for AGNC:

  • Current share price: $28.18
  • The 52 week range is $22.03 to $30.76
  • Earnings estimates for 2011: $4.02
  • Earnings estimates for 2012: $5.47
  • Annual dividend: $5.60 per share which yields about 19.9%
  • Book value: $26.91 per share

Hatteras Financial Corp (NYSE:HTS) is a mortgage real estate investment trust company based in North Carolina. HTS trades at a discount to book value. On Tuesday, October 4, 2011, this stock plunged to $22.33, (a new 52-week low) on heavy volume and has rebounded sharply. However, it is still well off the 52-week high and it could see a rebound in January.

Here are some key points for HTS:

  • Current share price: $26.01
  • The 52 week range is $22.33 to $31.98.
  • Earnings estimates for 2011: $4.20 per share
  • Earnings estimates for 2012: $4.23 per share
  • Annual dividend: $4 per share which yields 15.5%
  • Book value: $26.32 per share

MFA Financial (NYSE:MFA) is a real estate investment trust that invests in residential mortgage-backed securities. MFA trades at a discount of about 14% to book value. On Tuesday, October 4, 2011, this stock plunged to $6.25, and this was a new 52-week low. Insiders have been buying shares recently, that can be seen here.

Here are some key points for MFA:

  • Current share price: $6.53
  • The 52 week range is $6.23 to $8.64
  • Earnings estimates for 2011: $1.01 per share
  • Earnings estimates for 2012: $1.06 per share
  • Annual dividend: $1 per share which yields 15.6%
  • Book value: $7.43 per share

Armour Residential REIT (NYSE:ARR) is a real estate investment trust that invests in residential mortgage-backed securities. ARR trades for a premium of about 2% to book value, but offers a very high yield at nearly 20%. On Tuesday, October 4, 2011, this stock dropped to a new 52-week low of $5.40, but has rebounded sharply since. It still could see some more upside in January.

Here are some key points for ARR:

  • Current share price: $7.05
  • The 52 week range is $5.40 to $8.33
  • Earnings estimates for 2011: $1.01 per share
  • Earnings estimates for 2012: $1.06 per share
  • Annual dividend: $1.32 per share which yields 19.1%
  • Book value: $6.78 per share

Invesco Mortgage Capital (NYSE:IVR) is a mortgage real estate investment trust company based in Georgia. This is one of the highest yielding mREIT stocks and it is also trading at a discount to book value. The stock yields almost 22% and the book value is about $16.45. This stock appears extremely undervalued and it is likely to rebound in January.

Here are some key points for IVR:

  • Current share price: $15.11
  • The 52 week range is $12.55 to $24.07
  • Earnings estimates for 2011: $3.55 per share
  • Earnings estimates for 2012: $3.24 per share
  • Annual dividend: $3.20 per share which yields 21.6%
  • Book value: $16.45 per share

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: Why Mortgage REIT Stocks Could See A Big Rebound In January