Seeking Alpha

Bells ringing on mortgage REITs? Goldman says Sell

  • Initiating coverage on the sector giants, Goldman sees both Annaly (NLY) and American Capital Agency (AGNC) as Sells.
  • "We expect book value to fall as rates rise and MBS spreads to widen post Fed tapering," says analyst Eric Beardsley, giving NLY a $9.50 price target. With management taking actions to protect said book value such as moving into short-duration assets and boosting hedges, expect more earnings headwinds and dividend cuts of about 40%. An expected dividend of $0.80 per share is an 8% yield based on the current stock price. Total return of 2% over the next year compares to 10% Beardsley expects for the overall mREIT sector (REM).
  • It's the same story for AGNC which gets an $18.50 price target. Beardsley expects book value to fall 15% to $21.39 by Q4 next year and the dividend to drop to $2 - a 10% yield based on the current stock price. He sees total return of 4% over the next year, again compared to 10% for the overall sector.
  • Related ETFs: MORL, MORT
Comments (62)
  • MobilePreacher
    , contributor
    Comments (437) | Send Message
     
    Nobody is shocked right? It been coming for a year... The pipe dream of hedging a very leveraged book of long duration fixed MBS is clearly now undressed for all to see. (CMO) is the place to be
    5 Dec 2013, 07:52 AM Reply Like
  • WisPokerGuy
    , contributor
    Comments (889) | Send Message
     
    Exactly. Goldman comes out with these price targets now???

     

    This is basically worthless information. If this "analyst" had come out with this prediction in April, then he'd be worth his paycheck. As it is, this downgrade is like saying the Red Sox are going to win the 2013 World Series.

     

    Gezzz, these analysts are such lemmings. The real problem is that people still react to this kind of stuff.
    5 Dec 2013, 10:52 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8683) | Send Message
     
    There.

     

    Will.

     

    Be.

     

    No.

     

    Taper.

     

    Next.

     

    Year.

     

    P.S.-----

     

    What is the worth to you for FREE advice from Goldman Sachs?
    5 Dec 2013, 11:24 AM Reply Like
  • xxavatarxx
    , contributor
    Comments (2615) | Send Message
     
    I'm just shocked it took this long for them to say this MobilePreacher
    5 Dec 2013, 12:46 PM Reply Like
  • RWMostow
    , contributor
    Comments (1435) | Send Message
     
    Deep-

     

    Agreed as 2014 is an election year.

     

    -rwm
    5 Dec 2013, 05:59 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8683) | Send Message
     
    Bingo!!
    5 Dec 2013, 08:45 PM Reply Like
  • Caraita
    , contributor
    Comments (41) | Send Message
     
    So I wonder why Goldman did not say sell a year ago? Seems strange to me. Being sarcastic.
    5 Dec 2013, 08:09 AM Reply Like
  • ChuckJ
    , contributor
    Comments (78) | Send Message
     
    I wonder where you find how much Goldman owns now and how much they owned 6 months age?
    5 Dec 2013, 08:14 AM Reply Like
  • MobilePreacher
    , contributor
    Comments (437) | Send Message
     
    Goldman doesnt need to buy AGNC... They can buy the same securities that AGNC buys. There is nothing magical about what AGNC holds. Any institution can go out into the marketplace and buy MBS's
    5 Dec 2013, 08:40 AM Reply Like
  • COBeeMan
    , contributor
    Comments (1367) | Send Message
     
    MP - I think the point is that Goldman is quite a bit late on their call. So then one has to ask why make the call now instead of when the problems started? Well, one reason would be because end of year tax selling will push the mREITs down a little further so Goldman will look smart, and in Q1 their brokers can privately recommend a buy to their customers just before the mREITs start to recover. There will be a small jolt when tapering begins, and another round of panic when the Fed talks about ZIRP going away, but mREITs are not going away and will keep pumping dividends during this cycle low. The DRIPers will be buying additional stock at all time lows and will have A LOT more shares when the cycle normalizes again.

     

    CMO is not a bad choice for when ZIRP is rumored to go away (in about 2+ years), but I like MFA and NRZ too.
    5 Dec 2013, 10:00 AM Reply Like
  • MobilePreacher
    , contributor
    Comments (437) | Send Message
     
    that could bee COBee... the firms all play that game... or it could be that the pain for AGNC shareholders is not over yet. I just know that borrowing short term to buy long term debt is a losing strategy... and its the very strategy AGNC has embraced.
    5 Dec 2013, 11:09 AM Reply Like
  • Michael Clark
    , contributor
    Comments (8862) | Send Message
     
    When they issue a sell signal, they start to buy. When they issue a buy signal, they start to sell. Watch them, hear them, but don't trust them.
    5 Dec 2013, 01:23 PM Reply Like
  • ChuckJ
    , contributor
    Comments (78) | Send Message
     
    That was my point
    6 Dec 2013, 08:22 AM Reply Like
  • garyekolb
    , contributor
    Comments (22) | Send Message
     
    OK, so you get $3.20 dividend in year before 15% drop. You're still buying a stock with a PE around 4. I'm staying long and selling 18 dollar puts
    5 Dec 2013, 08:14 AM Reply Like
  • MobilePreacher
    , contributor
    Comments (437) | Send Message
     
    you will not get that dividend. In fact the div could get cut by about 40%
    5 Dec 2013, 08:39 AM Reply Like
  • MobilePreacher
    , contributor
    Comments (437) | Send Message
     
    also the problem is... its been a FIFTY percent drop in the last year.
    5 Dec 2013, 08:56 AM Reply Like
  • Dividend Newb
    , contributor
    Comments (5) | Send Message
     
    Day late and a dollar short!
    5 Dec 2013, 08:39 AM Reply Like
  • chopchop0
    , contributor
    Comments (3538) | Send Message
     
    pretty much. probably closer to the bottom than the top here.
    5 Dec 2013, 09:05 AM Reply Like
  • rheimerl
    , contributor
    Comments (392) | Send Message
     
    its all a bunch of "noise"
    5 Dec 2013, 08:43 AM Reply Like
  • MobilePreacher
    , contributor
    Comments (437) | Send Message
     
    a share price decline from the high 30s to the teens isnt noise... its a collapse.. i think its down all of 50%
    5 Dec 2013, 08:53 AM Reply Like
  • gratefuldwg
    , contributor
    Comments (39) | Send Message
     
    are you new to trading?
    5 Dec 2013, 10:13 AM Reply Like
  • HOLO1234
    , contributor
    Comments (59) | Send Message
     
    WOW he's really going out on a limb here. That's why they get paid the big bucks. Analysts are plain and simple "monday morning quarterbacks"!
    5 Dec 2013, 08:59 AM Reply Like
  • Doyle3000
    , contributor
    Comments (1431) | Send Message
     
    OK call me stupid (I'm used to it) but if Yellen is already claiming that the borrowing rate is going to remain around 0% and the taper (and natural market forces) are going to raise mortgage interest rates over the next year, wouldn't that increase the spread? I'm not so sure this guy from Goldman is correct. We shall see that's for sure.

     

    Keep in mind Goldman could be buying up AGNC and NLY big time over the next several months. After all, it's dollar bills selling for $0.80
    5 Dec 2013, 09:08 AM Reply Like
  • COBeeMan
    , contributor
    Comments (1367) | Send Message
     
    I agree. I think they are literally calling the imminent bottom and will be buying in Q1 before they upgrade their rating in Q2.
    5 Dec 2013, 10:24 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8683) | Send Message
     
    Doyle3000:

     

    Bingo.

     

    Thumbs up.
    5 Dec 2013, 11:26 AM Reply Like
  • sparker561
    , contributor
    Comments (89) | Send Message
     
    Doyle 3000 expresses about the right amount of cynicism. In a comment I made yesterday at Regarded Solution's article, "Annaly and American Capital: OK How Do The Best Analysts Rate These Stocks", I explained why the ratings of analysts' at Investment Banking ("IB") firms are often influenced by the business decisions of the firms sells-side operations. To those observations, I would add that IB firms who initiate coverage of a stock are more likely than not to have become market-makers in a stock they begin rating--which is more likely to generate an initial Downgrade than an Upgrade. A firm which is a market-maker and/or buying for it's own account, and/or accumulating a large position for an important institutional or retail customer, naturally wants to average down it's costs.. There's a buyer for every seller and there seems to be adequate, if not ample, liquidity for most of the REITS analyzed here. So, buyers are betting against REIT sellers. I don't know how to identify the buyers; I suspect may of them are IB firms and institutions. To net it out, I would view the ratings of any one or two IB analysts with caution. I would give more weight to a particular rating made by a preponderance of, say, 10 or more analysts. I would carefully consider the ratings of independent analysts, like Zacks, as well as the detailed analyses presented here. And I would continue to monitor the Institutional REIT holders for number, reputation, holdings size, and trading styles (aggressive, moderate, low)
    5 Dec 2013, 01:28 PM Reply Like
  • MorrisSean
    , contributor
    Comments (68) | Send Message
     
    I bought 500 shares today of NLY on the GS news. I wouldn't be surprised it GS initiated a short position either for themselves or a client before giving the sell recommendation. NLY is very close to a bottom. I will be buying 500 more shares when QE ends (or reduced) and add 500 when they raise their Div.
    5 Dec 2013, 01:30 PM Reply Like
  • MorrisSean
    , contributor
    Comments (68) | Send Message
     
    FYI
    I've never owned NLY before and have been watching and waiting for an opportunity to get in.
    5 Dec 2013, 01:31 PM Reply Like
  • stevewojo
    , contributor
    Comments (187) | Send Message
     
    If they do what you are suggesting, that is very unethical at the least and criminal at the most!
    5 Dec 2013, 04:58 PM Reply Like
  • mmchilcote
    , contributor
    Comments (18) | Send Message
     
    I remember Goldman came out and gave US Steel (X) a "conviction buy" when it was up around $130 a share back in 2008. That was about the top. It is now trading below $30. I don't believe any of these analyst calls.
    5 Dec 2013, 09:09 AM Reply Like
  • chopchop0
    , contributor
    Comments (3538) | Send Message
     
    Yup. S&P said V (Visa) was a hold in 2008 @ $65. Analysts opinions aren't worth the toilet paper they are written on
    5 Dec 2013, 09:17 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8683) | Send Message
     
    My favorite:

     

    JMP Securities May 21, 2012

     

    Bank of America target?

     

    Market Underperform Downgrade to $5.50
    5 Dec 2013, 11:30 AM Reply Like
  • Origa
    , contributor
    Comments (545) | Send Message
     
    My guess is that GS want to buy into the market as cheap as possible.
    5 Dec 2013, 09:10 AM Reply Like
  • Hubert Biagi
    , contributor
    Comments (703) | Send Message
     
    Typical... sell at the bottom
    5 Dec 2013, 09:14 AM Reply Like
  • panamerican
    , contributor
    Comments (203) | Send Message
     
    This is amusing. After AGNC has fallen to 20 they're finally comfortable stating the obvious ("We expect book value to fall as rates rise and MBS spreads to widen post Fed tapering,")? Tell me something I don't already know. How do they justify the compensation these analysts get? As a contrarian, this Goldman report has me believing we are close to a bottom. The only salient point made in the report is that the total return over the next year may not be worth the risk level of this investment.
    5 Dec 2013, 09:29 AM Reply Like
  • larrysocie
    , contributor
    Comments (9) | Send Message
     
    Hasn't Goldman already been convicted of cheating their customers? Are they not still under investigation for manipulating in the Libor scandal. I would think SA would require warnings just like they do for other authers in this space.
    5 Dec 2013, 09:29 AM Reply Like
  • stevewojo
    , contributor
    Comments (187) | Send Message
     
    GS coughed up $13 billion in fines last week for mortgage irregularities. That lesson wasn't expensive enough?
    5 Dec 2013, 05:02 PM Reply Like
  • bill d
    , contributor
    Comments (1905) | Send Message
     
    Why? - it ain't like it's THEIR money!
    5 Dec 2013, 05:31 PM Reply Like
  • Caraita
    , contributor
    Comments (41) | Send Message
     
    Goldman pays for old lies with new lies then rinse repeat. Its called Money churn makes money with the transaction fees and the Govt doesn't care either because they make money on the transaction fees also that's why they don't really want to fix it. You just have to be good at watching the tape as an investor or trader.
    6 Dec 2013, 09:23 AM Reply Like
  • ChuckJ
    , contributor
    Comments (78) | Send Message
     
    I thought that was JP Morgan Chase, was it GS too?
    7 Dec 2013, 11:04 AM Reply Like
  • smurf
    , contributor
    Comments (4151) | Send Message
     
    Another analyst sell recommendation? I'm shocked, shocked!
    5 Dec 2013, 09:38 AM Reply Like
  • kgerickson
    , contributor
    Comments (242) | Send Message
     
    The price action in NLY has been decent (not cracking) the last few days with poor headlines. With the big volume day last week and some insider buying.... it might be a good entry point (with stops) if we can get through today and tomorrow (jobs).
    5 Dec 2013, 10:08 AM Reply Like
  • stevewojo
    , contributor
    Comments (187) | Send Message
     
    If you want to get in, you can put in a low-ball buy that might get filled!
    5 Dec 2013, 05:04 PM Reply Like
  • Michael Nau
    , contributor
    Comments (972) | Send Message
     
    I wonder what amount of buybacks GS assumed in their models. AGNC bought back 3% last quarter and is on pace to do the same thing again.

     

    You could look at this in two ways: 1.) if AGNC keeps trading at a discount to book, there is an added 12% yield on buybacks 2.) buybacks will help to stabilize book value even if interest rates keep rising
    5 Dec 2013, 10:12 AM Reply Like
  • mmchilcote
    , contributor
    Comments (18) | Send Message
     
    I agree with above. Discount to book value plus dividends should have placed these stocks at "hold", not sell. I can understand no "buy" rating, but "sell" now?
    5 Dec 2013, 10:27 AM Reply Like
  • tstreet
    , contributor
    Comments (745) | Send Message
     
    I would think that any rate rises would be fully discounted by now. Or, to put it another way, could someone please tell me if these anticipated increases have been discounted by now. Regardless, it is mostly about what the market believes. The market apparently does not believe the stock has been appropriately discounted yet. And none of us are capable of knowing whether it is fully discounted. We will know in retrospect and those who bought in at the bottom will be considered geniuses.

     

    As for GS, it is much more worthwhile reading some of the analysts we have here on SA.

     

    And who in hell trusts GS at this point. I certainly would not pay for their advice.

     

    My advice is not to follow advice.
    5 Dec 2013, 10:28 AM Reply Like
  • Patent News
    , contributor
    Comments (1321) | Send Message
     
    buying more, thanks for the drop guys.
    5 Dec 2013, 10:33 AM Reply Like
  • Patent News
    , contributor
    Comments (1321) | Send Message
     
    they are so sure of the drop while market sets records. annaly is smarter to preserve gains.
    5 Dec 2013, 10:34 AM Reply Like
  • surfguy65
    , contributor
    Comments (17) | Send Message
     
    Maybe ACAM should hire this guy at Goldman and get rid of Kain. Afterall, Kain must be a total incompetent klutz buying more than $1.1 million worth of AGNC just in that past few months.
    5 Dec 2013, 10:46 AM Reply Like
  • therebel
    , contributor
    Comments (26) | Send Message
     
    So how far AGNC will fall is anybodys guess but as intrest rates go up, so will the spread. Agnc biggest problem has been playing a lot of the hedges wrong.
    5 Dec 2013, 10:54 AM Reply Like
  • 0123
    , contributor
    Comments (32) | Send Message
     
    These predictions from GS without showing analysis, especially when new mortgages get higher rates with short term rates anchored to zero, need to be better understood.
    5 Dec 2013, 11:04 AM Reply Like
  • WARRENWATT
    , contributor
    Comments (22) | Send Message
     
    There is no discounting yr end loss salvage for taxed accounts, with the someday end of zirf. What AGNC needs is higher mort rates with vol. This will not happen in US until wages of the 95% recover.
    5 Dec 2013, 01:23 PM Reply Like
  • READ THE PAPERS
    , contributor
    Comments (209) | Send Message
     
    All the mReits a have a huge image problem which overwhelms whatever their underlying number say or don't say. They are also on the automatic sell list of every algorithmic platform out there as soon as the 10 year goes up. They were caught flatfooted in May by the fastest and largest increase in the 10 yr yield since 1994. They and all the long dated bond funds have been hit by a a bus. It will take years to recover.
    5 Dec 2013, 07:58 PM Reply Like
  • chopchop0
    , contributor
    Comments (3538) | Send Message
     
    does it make a lot of sense though for people looking at this from a dividend rather than BV perspective? Shouldn't that end up widening the curve and helping the yield?
    5 Dec 2013, 08:44 PM Reply Like
  • Doyle3000
    , contributor
    Comments (1431) | Send Message
     
    Correct RTP - the quickness of the rate jump caught all of us off guard. It was clearly pent up and exploded when Ben hinted at the taper. Now the market has digested that the taper is inevitable and we'll see GRADUAL increases that Gary et al can manage well.

     

    Buying more AGNC this morning
    6 Dec 2013, 09:42 AM Reply Like
  • c'mon
    , contributor
    Comment (1) | Send Message
     
    Read the first line guys! Initiated coverage..
    5 Dec 2013, 08:15 PM Reply Like
  • Mktneutralhedger
    , contributor
    Comments (1110) | Send Message
     
    Weird call and not only for the timing. I can't figure out how on earth could the whole sector outperform substantially AGNC+NLY that are the largest companies. Does anybody has the piece by Goldman Sucks?
    6 Dec 2013, 12:14 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2771) | Send Message
     
    Hi Everyone,

     

    Goldman Sachs issued a SELL call yesterday on AGNC and NLY.

     

    SA has run with this story all over the place. Many comments on this.

     

    How many of you have researched Goldman Sachs actual holdings of AGNC and NLY?

     

    How many of you know how many shares GS owns of AGNC? How many of you know if GS has been buying AGNC/NLY or selling them in 2013?

     

    Hint: GS has been BUYING them hand over fist. I follow the money on the BUY side, not the SELL side call they make public.

     

    Do your research, be informed.

     

    Some of you know this, since you read Scott Kennedy's latest article and Gene and Positive Concavity alerted the readers there to this information and where to find it. You might not think this is important, I would have to disagree. Sure GS can sell, and it was meaningless, however we now know where to look to track their buys and sells. I like to have this type of information.

     

    I recommend reading Scott's articles. He is very knowledgeable and level headed. He bases his articles on facts not on emotion. I follow the brightest here at SA.

     

    Good luck to all.
    6 Dec 2013, 05:40 PM Reply Like
  • ChuckJ
    , contributor
    Comments (78) | Send Message
     
    Remind us of where to find how many $AGNC and $NLY shares that GS owns.
    7 Dec 2013, 11:55 AM Reply Like
  • ChuckJ
    , contributor
    Comments (78) | Send Message
     
    The NASDAQ web site says GS has 2m+ shares and increased their buy by 166% as of the Sept 30 SEC report.
    7 Dec 2013, 02:51 PM Reply Like
  • Zvx
    , contributor
    Comments (24) | Send Message
     
    LOLLLLLLLz, goldman is truly the best reverse sage ever, gave that joke at the best timing for REIT.
    21 Aug, 02:46 AM Reply Like
  • Dividends#1
    , contributor
    Comments (2771) | Send Message
     
    Hi Zvx,

     

    LOL. I backed up the truck in 2013 adding to AGNC as it kept dropping. Sold 1/2 my position at a nice profit in 6/2014. Gotta love Goldman scaring out the weak hands. They were buying and telling others to sell. The big boys always make the big money. I did well for a little guy.
    21 Aug, 05:57 PM Reply Like
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