Thornburg: Looking for Value Among Mortgage REIT Preferred Stock

During the days of maximum fear around Thronburg Mortgage (TMA), I bought some of the common and some of the preferred of this mortgage REIT after hearing the CEO give what I thought was a very honest and detailed appraisal of their losses. He impressed me. Honest, humble CEO's always do.

I realized this company would survive and, after some research, realized that it was being run by someone who understood the portfolio. He had done his homework when he said what he thought the worst case liquidation value was and what the losses would be. He was the first to accept their losses and showed that he understood why they happened.

I've been buying in small bits more of the preferred shares of this REIT that buys the jumbo home mortgages that are too big for Fannie Mae and Freddie Mac guarantees.

Disclosure: I own TMA, TMAprC, TMAprD. I have also bought these names for my friends and family. I bought the majority of these preferred shares at much lower prices but have also bought more for my own friends' accounts at prices between $18.00 and $19.50.

Comments

[Patrick]

David, another good name for a REIT preferred issue is RAIT Financial Trust. RAIT also got crunched by its exposure to other mortgage REITs and homebuilders, but the company has come through and is still paying a solid dividend on the common stock. All three series of RAIT's preferred stock (A, B, and C) are yielding over 14% right now. Other good options include offerings from Newcastle Investment, iStar Financial, and Anthracite Capital, all which have preferreds yielding over 10% right now. For a very speculative but potentially lucrative play, the preferred stock of NovaStar Financial is yielding over 20%.

[jjason]

To just say "buy rait investment trust or thornburg" without giving any kind of an analysis is not helping readers to understand why one should invest in these firms. I owned RAS and sold it at a 14% ROI. Then I did not buy RAS when they issued new common at about $34 per share in January 2007. Anyone who tracked RAS saw the stock's price go to about $7-8 per share. This was terrible for those investors who bought at higher prices. Finally, do either of you know what RAS or Thornburg are actually worth? How can these firms be properly valued when their assets cannot be properly valued? Finally, other writers on Seeking Alpha have commented that analysts did not see the disaster ahead for firms like Novastar, New Century Finance etc. I would suggest to readers to stay away from stocks that are too hard to value and have debt equity ratios of 8 or 9 or 12. With loads of debt, many of these firms will still be in trouble.

[Patrick]

I can't speak for the author, but the purpose of my comment was give some names of preferred stock issuances within the mortgage REIT world that offer attractive yields. I would never suggest that anyone purchase any security without doing his own due diligence first.

I would argue that with preferred issuances, the fair value of the stocks is less important than the underlying company's ability to pay the dividend.

[yourfilled]

Consider spreads buying thornberg, but sell countrywide they could go out of business.
author: Tricks of the Active trader.
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