MReits: Money lying in a corner?

Skeptical about investing in mREITs until maybe another washout from another leg up in interest rates, one trader - eyeing the "sheer cheapness" of the sector and the wholesale selling of stocks with no regard to durations or NAV - can wait no longer. Investors, he/she says, stand to make a low-risk 20-30% over the next 12-24 months - much of it in cash dividends - even if rates do climb to 3.5-4%.

His/her top pick is Ellington Residential (EARN +0.1%), managed by the same crack team who has been able to preserve book value so well at Ellington Financial (EFC +0.6%). The stock trades at a 16% discount to book, at 6.3x core EPS (earnings from interest, not cap gains), and has about a 5% exposure to higher rates - meaning a 100 bps rise in rates would ding book value by 5%, still putting the stock at just 89% of book.

Should rates stabilize, the upside is 1x book value. Add in dividends and that's a 32% return in a year.

Also getting a positive mention for preserving book value in a tough time is MFA Financial


Comments (4)
  • keelac
    , contributor
    Comments (94) | Send Message
    What firm made these comment?
    8 Jan 2014, 04:04 PM Reply Like
  • Marek
    , contributor
    Comments (1516) | Send Message
    Seems we are not supposed to know, as well as the supposed "trader" also un-named. Noteworthy though is we are just about at the end of a typical IPO lockup period if you look at the IPO date.


    I think this plus the IPO review at SA will tell enough.
    8 Jan 2014, 05:41 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11174) | Send Message
    Just sell puts on (REM) and use the income to buy calls on (TBT) and sleep well @ night knowing that your money is hedged.
    8 Jan 2014, 08:10 PM Reply Like
  • rrs2205rrs
    , contributor
    Comments (131) | Send Message
    Opened a position in EFC just now.
    9 Jan 2014, 11:47 AM Reply Like
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