Annaly and American Capital lead mREIT decline after Sell rating


A check of the mortgage REITs following Goldman's interestingly-timed initiation of Annaly (NLY -1.6%) and American Capital Mortgage (AGNC -1.1%) with Sells finds the sector (REM -0.8%) again underperforming the broad market.

To review: Annaly is off about 40% in 8 months and American Capital is off about 42% in 7 months. Yes, higher interest rates have delivered a hit to their portfolios (which tend to be longish in duration), but investor distaste for the names also has both trading at roughly 20% discounts to their book values.

So is the call late? Maybe. On the other hand, one well-known hedge funder defines a 50% loss as holding a stock that goes from being down 80% to being down 90%.

Other names of interest: CYS Investments (CYS -0.4%), Western Asset (WMC -1%).

Related ETFs: MORT, MORL

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Comments (37)
  • Sebastien Couvidat
    , contributor
    Comments (76) | Send Message
     
    Thanks Goldman, that's very useful: initiating at sell 7 months after the initial sell-off. Reminds me of Wells-Fargo which had a buy for TEF until the day after Telefonica canceled the dividend last year: then Wells-Fargo changed its advice to sell after the damage was already done. This confirms that most analyst ratings are useless at best. Although, as a contrarian, GS advising to sell might mean it's a good time to start buying.
    5 Dec 2013, 01:34 PM Reply Like
  • itscalledcommonsense
    , contributor
    Comments (2550) | Send Message
     
    No stock is down so much that it can't drop another 50% in a very short period of time. Rule #1, learned in the 1970s.
    5 Dec 2013, 03:39 PM Reply Like
  • presidentasp
    , contributor
    Comments (78) | Send Message
     
    Agreed. Gee, you think he got it right? Probably at the bottom now.
    5 Dec 2013, 01:39 PM Reply Like
  • COBeeMan
    , contributor
    Comments (2978) | Send Message
     
    I think the bottom/buy is in Q1 (there will be several dips). Goldman will upgrade in Q2.
    5 Dec 2013, 01:49 PM Reply Like
  • stevewojo
    , contributor
    Comments (365) | Send Message
     
    Don't forget that tax loss sellers will be getting back in after the "wash sale" window closes in late December thru January. Buy now before the crowd gets in. Try a low ball buynorder.
    5 Dec 2013, 05:09 PM Reply Like
  • Swood@hvc.rr.com
    , contributor
    Comments (19) | Send Message
     
    You are seeing correctly, seeing through the current tax management selling which may not be over until the end of the month. I find it particularly laughable when a hedge fund, which by design makes most of its profits on the short side, issues negative commentary on a sector in which they profited hugely by going short while they told their clients to "buy...buy...buy" in 2007-8. Many of their execs should be behind bars. Another HF that was notorious for driving down stocks in order to purchase at rock bottom was SAC capital. I am long NLY because I like their move into commercial sector. I am currently under water, but I have no plans to pull the plug on what is a sound investment NOT A TRADE. Insiders are buying with their after tax dollars. Enough said.
    6 Dec 2013, 07:23 AM Reply Like
  • brea
    , contributor
    Comments (49) | Send Message
     
    anybody that would actually use gs for "investing" advice
    or calls is seriously just looking for a beating of biblical proportions.
    they've demonstrated their sincerity repeatedly for YEARS!!!!!!!
    they are "producers" you are "muppets" and exist to be fleeced
    at their discretion.
    any questions?
    5 Dec 2013, 01:47 PM Reply Like
  • theo1106
    , contributor
    Comments (5) | Send Message
     
    Excellent comments, painfully true.
    6 Dec 2013, 08:58 AM Reply Like
  • Pinkrabbit
    , contributor
    Comments (198) | Send Message
     
    Even if the dividend gets cut by 50% to $.40 AGNC would still be paying 8%. I doubt the cut would even be that much. As soon as AGNC starts to move up and crosses the 8 day SMA, I loading up.
    5 Dec 2013, 01:49 PM Reply Like
  • Sebastien Couvidat
    , contributor
    Comments (76) | Send Message
     
    Also, their price target for NLY is $9.50 and right now the price is $9.88: they expect a mere 3.8% decrease? Sounds more like a HOLD than a SELL to me
    5 Dec 2013, 01:53 PM Reply Like
  • murray555
    , contributor
    Comments (432) | Send Message
     
    Good point Sebastien, I certainly plan to hold.

     

    Maybe we could get Jim Cramer's input on this? LOL
    5 Dec 2013, 02:29 PM Reply Like
  • jcmags
    , contributor
    Comments (2) | Send Message
     
    I'm holding, but its painful to watch.
    5 Dec 2013, 04:51 PM Reply Like
  • very_thirsty_for_income
    , contributor
    Comments (946) | Send Message
     
    Dear Sebastian:

     

    In defining price targets, I don't know whether Goldman means that the price will go below the target price, then increase to the target price at the end of one year. Otherwise, as you state, there is not tremendous downside to the target price, and this would characterize the AGNC and NLY rating as a hold rather than a sell.

     

    VTFI
    5 Dec 2013, 09:24 PM Reply Like
  • very_thirsty_for_income
    , contributor
    Comments (946) | Send Message
     
    I don't think its a good idea. Cramer will likely reiterate Goldman's view and scare another large swath of shareholders into selling.
    5 Dec 2013, 09:25 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11225) | Send Message
     
    Would be interesting to see what happens to the APR14 $9 calls if purchased today and sold in late February after the Fed forgets to announce a taper over the next couple of meetings.

     

    ...would be interesting indeed.
    5 Dec 2013, 02:02 PM Reply Like
  • READ THE PAPERS
    , contributor
    Comments (269) | Send Message
     
    Most Reits will probably continue to pay dividends but those who bought NLY at its height are now getting a yield of about 9%. More dividend cuts in 2014 will force the yield down to 6-7% for those people at which point the whole sector wil be a pariah.
    5 Dec 2013, 03:03 PM Reply Like
  • big dogs
    , contributor
    Comments (28) | Send Message
     
    Or just another typical market manipulation by the likes of Goldman and consistent with their methods for making $$ via this technique (initiating coverage in a stock they may have taken a trading position in).
    5 Dec 2013, 03:38 PM Reply Like
  • Mevo
    , contributor
    Comments (663) | Send Message
     
    Seems GS want to cover their shorts. Now that they pushed the price low enough, they need your stocks to exit their position...
    5 Dec 2013, 03:51 PM Reply Like
  • stevewojo
    , contributor
    Comments (365) | Send Message
     
    If what you say is true, that's something form the SEC to investigate!
    5 Dec 2013, 05:11 PM Reply Like
  • rsunna
    , contributor
    Comments (14) | Send Message
     
    Even if true, I do not think this is illegal!
    5 Dec 2013, 08:22 PM Reply Like
  • Mevo
    , contributor
    Comments (663) | Send Message
     
    Yeah sure, the SEC and the other "regulators" are here to protect us... For example by forcing every little guy to say which position he has (or plan to have) when expressing a personnal opinion. Have you ever seen such a statement from GS, JPM, and co ?

     

    I guess you should ask yourself who the regulators are really protecting (I agree there's often some propaganda like alledged fines and things like this, to mislead you)
    6 Dec 2013, 08:28 AM Reply Like
  • Mevo
    , contributor
    Comments (663) | Send Message
     
    I guess you are correct. It would be damn illegal if you or me were doing it, but not them...
    6 Dec 2013, 08:30 AM Reply Like
  • stevewojo
    , contributor
    Comments (365) | Send Message
     
    How about unethical? Definitely not fiduciary!
    6 Dec 2013, 08:38 AM Reply Like
  • Douglas E. Johnston
    , contributor
    Comments (1773) | Send Message
     
    during the bottom of the last cycle, NLY paid out .5% of assets (see chart here http://seekingalpha.co...). They have 93bn in assets so at .5%, we'd be talking a 50c dividend. Now the divvy yield was low ~5% but not sure one should take comfort there. Its anyone's guess but i would think $6-7 could be a low...jm2c
    5 Dec 2013, 04:53 PM Reply Like
  • Phattboy43
    , contributor
    Comments (143) | Send Message
     
    Douglas,

     

    Indeed, those lower numbers are a possibility. Calling a stock's bottom is a notoriously and historically tough game to play. When the stock in question is a company leveraged between 5x-9x or more, the challenge of guessing a bottom is compounded if not impossible.

     

    I have a very small percentage of my portfolio in JMI and NYMT. Less than 1%. I've said it before and I'll say it again about mREITS. There are far too many uncontrollable and unforeseeable macro economic variables involved for any management team to really control what will come. The last 5 years have been an almost perfect storm. Those days are clearly over.

     

    Lastly, nice article on FSC.
    5 Dec 2013, 09:42 PM Reply Like
  • Douglas E. Johnston
    , contributor
    Comments (1773) | Send Message
     
    phattboy - thanks for the plug....and i agree calling bottom on interest rate leverage in a fed tapering world is tough...the one +tive for mREITs is that the FEd - cognizant of the "new" role they play in mortgage finance - will probably coddle them a bit regarding monetary policy. They are still haunted by the effect of an 1/8 point rise back in the early '30s (that is 1930s cough, cough)......NYMT seems reasonable with floating exposure i blv....i currently own no mREITs
    6 Dec 2013, 08:12 AM Reply Like
  • Flowersinavase
    , contributor
    Comments (2) | Send Message
     
    Given that so many other dividend investing options pay a much smaller dividend, it will only take a few months to even up against the losses. It appears that there is a 3 year cycle for REITs. 3 years up, 3 years down. In the meantime, reinvesting the dividends delivers compounding magic. I am holding.
    5 Dec 2013, 08:18 PM Reply Like
  • jraskib
    , contributor
    Comments (946) | Send Message
     
    I am holding too: AGNC, IMR, NLY, TWO. Loss of principal so far 10% - 20%. Probably further losses are unavoidable. But going to add to positions when prices get lower.
    Good luck to all mREITs holders.
    Buying by insiders is something to think about. Hardly they are investing $mlns just to fool investors. They're sure that at some point the cycle will turn up. Who knows when thou.
    5 Dec 2013, 08:49 PM Reply Like
  • AZKID44
    , contributor
    Comments (85) | Send Message
     
    I'm with you jraskib. My current position cost is a little under $12. If NLY pulls back around $9 I'll just average down and sock away the dividend. I firmly believe that in the next 12 ~18 months we all will look back at these low prices and see them as an excellent buying opportunity.
    6 Dec 2013, 03:40 AM Reply Like
  • Patent News
    , contributor
    Comments (1475) | Send Message
     
    doing well with hedged put position since 2 days ago.

     

    even if the NLY goes down the put will double or triple.
    6 Dec 2013, 11:47 PM Reply Like
  • hanakookie
    , contributor
    Comments (808) | Send Message
     
    I wouldn't put any money into NLY or AGNC till the fed starts it's taper. I won't put any money in ARR, or JMI. Management is their risk. I'm looking at getting some NLY but only after the fed starts to taper. Plus whose going to buy all this paper when it does come out. Almost 2T in MBS is a lot.
    7 Dec 2013, 03:13 AM Reply Like
  • COBeeMan
    , contributor
    Comments (2978) | Send Message
     
    hana - won't the MBS value/prices go down due to fewer buyers? Isn't that part of why the mREIT's current BV goes down temporarily until they can rebalance?
    7 Dec 2013, 03:50 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (4886) | Send Message
     
    That is what I think COBeeMAN.
    Once the fed stops buying 50% of the market the price has to drop to raise the yield to attract buyers to come in and fill that 50% gap being left behind.
    7 Dec 2013, 07:31 PM Reply Like
  • kadathy
    , contributor
    Comments (122) | Send Message
     
    What are the chances of any of these mREITS going bankrupt in the future because of their leverage?
    7 Dec 2013, 09:14 AM Reply Like
  • Pinkrabbit
    , contributor
    Comments (198) | Send Message
     
    Does anyone know why REITs are up today (12/9)? Seems odd given some signals from the FED that they may make a decision to start tapering after the 12/19 meeting. Seems counter-intuitive.
    9 Dec 2013, 03:38 PM Reply Like
  • COBeeMan
    , contributor
    Comments (2978) | Send Message
     
    I don't know, but certainty is always better than uncertainty; especially if it turns out to be not as bad as feared.
    9 Dec 2013, 06:37 PM Reply Like
  • Pinkrabbit
    , contributor
    Comments (198) | Send Message
     
    I don't think Tarp and Taper were all that bad to start with.
    10 Dec 2013, 10:00 AM Reply Like
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