Residential mortgages did not receive the same sort of bailouts that banks and other financial institutions got when the stock market sank so miserably a few years ago. Annaly Capital Management (NLY) is the country's biggest public REIT financer of home mortgages, but right now, I would say it is not the best investment, despite gross margins of about 61% at the time of writing. With its recent accruement of debt and sketchy practices that directly affect shareholders, Annaly could be heading for disaster at the expense of investors.
It is generally understood that capitalist companies like Annaly must pull in money in the form of loans - or in this case, convertible senior notes - in order to expand into new areas so that profits can grow. Annaly has a series of these notes due in 2015, and the company just decreased the yield on them. I believe that this is a sign of insecurity, as is the choice to opt for these instead of regular corporate bonds. Since the company has a lot of control over how convertible bonds are valued in terms of conversion rate, I feel that Annaly is not completely certain about its own financial stability over the next few years.
Last fall, a Crexus (CXS) investor filed a lawsuit against Annaly for alleged plots to increase Annaly's profits from its management of the company by making Crexus purchase "high-risk assets financed through a highly dilutive stock offering," according to the Shareholders Foundation. The results of this case are not yet finalized, but this sort of complaint could be damaging to Annaly's public image, and rightly so, since investors might be skeptical of a company that allegedly plays its shareholders in this way.
Furthermore, with the government beginning to focus on social programs to help the masses of unemployed citizens, housing and financing subsidies could undermine the profitability of stocks like Annaly and American Campus Communities (ACC) that bring in higher revenue when individuals in their consumer base have to make ends meet without external assistance.
Other companies might not be as affected by this situation. Prologis (PLD) just extended a lease in Mexico with IBM (IBM) that represents the company's largest lease ever. It is valid from now until 2020, which means that Prologis should have at least one reliable source of income for the next eight years. Meanwhile, this industrial real estate company has been busy rationalizing two of its co-investment ventures. The first quarter of 2012 also saw Prologis closing $360 million in third-party land and building dispositions across North America. $250 million of this amount belongs to Prologis.
So, here is one stock that appears to be managing itself well, even in the face of difficult market conditions. Its share price has seen a steady rise since late last year, and I expect to see this trend continue, even though the company's profit margin is currently down almost 16% and forward P/E is just over $188 in the red. Other figures are more promising, however, such as the 89.93% EPS for this year and the positive 19.46% change in performance YTD.
Crexus' stock has a gap to come back up and fill, and I do not expect the wait to be long. With sales up more than 468% from the year-ago quarter and gross, operating, and profit margins all up by around 100%, it looks to me like this stock is healthy and ready to rise back up from its current small dip. In fact, I would suggest that buying shares in this company is likely to yield great short-term results for those looking to make some quick money.
Early this year, Crexus managed to have a lawsuit brought against it dismissed by a court of law. To me, this shows that the company should be able to productively deal with issues that arise from time to time, although its owner Annaly may pull it down with it. Just a few days ago, shares crossed the 200 day moving average, which again indicates an ongoing drive to maintain profitability. Crexus is also buying up new properties, for example a $5 million industrial property in Las Vegas. With the right kind of management and relationships, Crexus should be able to snag a tidy profit from the use of this building and yard, although its management tends to be a bit questionable, as mentioned above.
While we're talking about the finance industry, there is one stock that has hardly had a bad week since 2009. American Campus Communities targets college students looking for options for housing communities both on- and off-campus. While this company stays largely out of the news, I do not think its lack of explosively exciting stories means that it is not worth a second glance. In fact, a brief overview of its recent activities reveals that it is steadily working on new and ongoing projects, like a development and management project in New York. I believe that this type of steady work ethic should signal stability to investors. This sort of stability is what has kept it largely off the radar in spite of its growing market value over the past few years.
American Campus Communities, Prologis, and Crexus show much more potential than Annaly, largely due to Annaly's inability to properly manage its finances, at least on the surface. Whether or not its financial struggles are real, the impression that shareholders are getting is probably going to negatively affect the value they place on its stock. Any of the other three finance stocks discussed in this article would be a far better choice than Annaly at this point in time, according to my analysis. That being said, Crexus might present higher risks than the other two, which is why I would shy away from it for now.