New Residential Investment Corporation: Buy The Massacre?

| About: New Residential (NRZ)


NRZ has lost ~17% of its value since the start of the year.

New Residential now sells for just 83 cents on the dollar, despite reporting record core earnings all throughout 2015 and hiking its dividend twice. NRZ is a victim of market.

New Residential announced a stock buyback earlier this week, which makes a hell of a lot of sense at these prices.

NRZ yields in excess of 18%.

It hurts to just look at stock prices right now. On the other hand, it can't be denied that the market meltdown has pushed many stocks into "Strong Buy" territory. The question is only WHICH stocks to buy now that they are on sale again. The Dow Jones Industrial Average and the S&P 500 are up 0.74% and 0.52% on Thursday after plunging indices on Wednesday stroke fear into the hearts of investors.

All stocks sold off on Wednesday, including real estate investment trusts, business development companies, and mortgage investment companies. Among the companies sliding was New Residential Investment Corporation (NYSE:NRZ), whose stock has fallen to around $10.

No hard feelings

I doubled down on New Residential Investment for my $100,000 high-yield income portfolio in December. Do I regret the purchase of 260 shares at $11.53 a piece now that I am down ~12% since I bought more of what I thought was a bargain back then?

No, I don't. There is no shame in taking a portfolio hit when markets crash, and investors rush for the door. I liked New Residential at $13, and I love it at $10. I explained in this article, "New Residential Investment Corp.: This 15% Yielder Is Not Getting Enough Credit", that Mr. Market is not giving NRZ the credit it deserves. New Residential reported record earnings in 2015 and increased its dividend twice last year...facts that investors too easily brush aside. Importantly, there is a good shot that New Residential's fourth quarter earnings are going to be stellar, too.

NRZ is in the bargain bin

New Residential Investment's stock is a compelling 'Buy' for two simple reasons:

1. NRZ has fallen too much, too fast. NRZ is down ~17% year-to-date. Right now, New Residential sells for a ~17% discount to its Q3-15 accounting book value of $12.18/share (based on a share price of $10.10 at the time of writing).

2. New Residential announced on Tuesday that it's "Board of Directors authorized the repurchase of up to $200 million of the Company's common stock over the next 12 months". The company will buy back stock as it sees fit in the open market or otherwise.

A buyback couldn't come at a better time. Buying back stock when it sells for 83 cents on the dollar is smart capital management and a compelling investment. More investment companies might want to rethink their own capital management plans, and follow New Residential Investment's buyback announcement.

As a shareholder, I cannot help but support management's proactive approach to dealing with the market correction.

Your Takeaway

As irritating and annoying as the current market meltdown is, we all need to recognize that New Residential Investment's business has NOT deteriorated in January. The sell-off is a healthy shakeout and NRZ, as far as I am concerned, is an absolute bargain. As a result of the market panic, NRZ's dividend yield has shot up to ~18%. This yield does NOT reflect the risk that comes with investing in this mortgage investment company, but rather reflects poor market sentiment. Management sees the market panic just the way I see it: As an opportunity to buy heavily discounted shares of New Residential Investment. Speculative "Buy for Income".

Disclosure: I am/we are long NRZ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.