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Long/short equity, event-driven, homebuilders, currencies
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Five months ago, I recommended Dynex (DX) as another play on a housing recovery (and bottom for 2013). The rationale was relatively straightforward:

  • Likelihood of increased Federal Reserve purchases of mortgage-backed securities (has not occurred yet).
  • Relatively positive reaction to an increase in liquidity through a stock offering.
  • Steady long-term performance since the 2011 lows.
  • Very high yield (now 11.3%).
  • Heavy insider buying in 2011.

Since then, DX has managed to tack on 12% and now sits at 15-month highs (and 6.9% away from all-time highs). Nearly all these gains have come since early June as the stock has broken out.

(click to enlarge)Dynex Capital breaks out to new 15 month highs

Dynex Capital breaks out to new 15 month highs

Source: FreeStockCharts.com

I think DX now sits at the nexus of some positively converging trends:

  • The pursuit of yield as "safe" government debt worldwide drops to unattractive yields given the likely future risks.
  • A growing preference for American investments with little to no exposure to the global economy.
  • And of course, a slowly growing realization that the housing market is beginning a sustainable recovery - albeit very slowly and very market specific. (For example, see "KB Home 'On Offense' As Its Housing Markets And Pricing Power Strengthen").

Dynex Capital is a stock that can still be bought on dips, and I am holding for the long-term.

For another alternative for investing in the housing recovery see "Vertical Capital Income Fund Offers Attractive Alternative for Investing In Mortgages."

Be careful out there!

Source: At 15-Month Highs, Dynex Further Confirms Bullish Bias Towards Housing Market