Keep an eye on the hot mortgage REIT sector today as Deutsche cashes in its chips on three bullish calls.
New York Mortgage Trust's (NYMT) cut to Hold is a valuation call, with analyst Stephen Laws acknowledging solid Q4 results and good prospects going forward, but noting the stock price is already near his raised price target of $7.75 (from $7). NYMT is the rare mREIT at the moment trading above book value.
Neither CYS Investments (CYS), nor American Capital Mortgage (MTGE) are at book, but both have moved a lot closer to it this year, and Laws cuts both to Hold, believing dividends, not capital appreciation will drive any returns from current levels. "Given investor concerns of higher interest rates, we believe it is unlikely that shares of agency MBS managers will trade at or above book value in 2014."
Deutsche, he says, currently forecasts the 10-year Treasury yield to hit 4% before year-end, likely keeping a lid on price-to-book ratios for the agency players.