A Hot Niche in Finance - Analyst Blog
January 17 2013 - 8:33AM
Zacks
This week, I have been reading a lot of comments -- from Zacks
strategists and subscribers alike -- about the Financial Sector.
That is, how to play it, if there is any coming earnings and
estimate revision strength, etc. etc.
I looked into the top-down Zacks Industries. Lo and behold,
the very top-ranked Zacks Industry, ranked number 1 out of 265
groups, up +1 over the last week, and with a solid eight companies
in it, is Finance-Mortgage and Related
Servicers.
Out of the eight companies, four are currently Zacks Ranked #1, two
are Zacks Ranked #2, with one of those a Zacks Rank #1 a week
ago. Pretty impressive stuff! The lowest current Zacks
Rank is a #3.
How does this fit into the big macro picture?
First of all, these are mostly small and mid cap financial
companies -- in a niche business area that is growing with
re-financing and issuance of mortgages.
Niches. What Kevin Cook and I agreed is one place to look for
opportunities in the Financial Sector earlier this week. It
also tells us where one pocket of strength may be found inside
balance sheets of larger diversified entities.
This type of finance activity underpins the rise in single-family
starts and sales, and apartment and condo construction.
Doing my macro homework, I re-produced the composite National
Case-Shiller single-family home price index over the last twenty
plus years.
A sobering exercise!
We do see apparent price stability in the current home price
index. But the graph also serves to remind us of the huge
bubble lurking behind in time.
See the graph below.
Kevin and I traded emails this morn.
A few cautious comments seem appropriate:
- There must be millions of underwater homeowners considering
their options. Walking away and declaring a bankruptcy is one
of them. Fannie and Freddie and Fed balance sheets are looming
policy issues, and introduce even more overhang and uncertainty to
the mortgage sector.
- Atlanta Fed president Dennis Lockhart said this week he is
concerned about the markets for Treasuries and mortgage-backed
securities. The Fed each month is buying $45 billion in Treasuries
and $40 billion in mortgage bonds. “Markets are highly connected
and highly interrelated so a severe spell of financial instability
obviously would be much broader than the markets in which we are
making the purchases,” Lockhart told reporters in Atlanta. He said
he sees “no immediate threats.”
- Bank regulators don’t always act quickly enough to defuse
challenges to financial stability, said Sheila Bair, former
chairwoman of the Federal Deposit Insurance Corp. “Sometimes we
know a lot and the problem is we are not acting on what we know,”
said Bair, a senior adviser to The Pew Charitable Trusts. “I worry
that there is still too much” inertia among supervisors of
financial firms.
Nonetheless, here are the Zacks Rank #1 mortgage finance and
servicing companies available to investors. Two are small cap
companies that offer sizable yields (6.6% and 13.9%).
Small Mortgage REITs
Home Loan Servicing Solutions (HLSS), Zacks Rank #1,
Outperform, Small Cap Value, $607M Market Cap, 6.6% Yield.
HLSS focuses on acquiring mortgage-servicing assets consisting of
mortgage servicing rights, rights to mortgage servicing rights,
associated servicing advances and other related assets. It intends
to engage residential mortgage loan servicers to service the pools
of mortgage loans underlying the mortgage servicing rights. Home
Loan Servicing Solutions, Ltd. is based in George Town, Cayman
Islands.
Javelin Mortgage Investment Corp. (JMI) Zacks Rank
#2, recently #1, no rating, $149M Market Cap. 13.9% Yield, REIT,
Small Cap.
JMI invests and manages a leveraged portfolio of agency
mortgage-backed securities, non-agency mortgage-backed securities
and other mortgage-related investments. It invests primarily in
hybrid adjustable rate, adjustable rate and fixed rate Agency RMBS
and non-Agency RMBS.
The company has elected to be taxed as a real estate investment
trust for U.S. Federal income tax purposes, commencing with its
taxable year ended December 31, 2012. Javelin Mortgage Investment
Corp is based in Vero Beach, United States.
Large and Mid Cap Mortgage Originators and Servicers
Nationstar Mortgage Holdings, Inc. (NSM), Zacks Rank #1
and Outperform, $3.6B Market Cap, 0.0% Yield. Large Cap Growth
NSM is a mortgage lender. It services loans throughout the United
States and originates primarily conventional agency and government
residential mortgage loans and also offers a diverse array of
complementary services for mortgage investors. Nationstar Mortgage
Holdings, Inc. is headquartered in Lewisville, Texas.
PHH Corp. (PHH) Zacks Rank #1, Outperform. $2.6B
Market Cap. Mid Cap Value
PHH is a leading outsource provider of mortgage and vehicle fleet
management services. It is the sixth largest retail originator of
residential mortgages in the United States and the second largest
fleet management services provider in the United States and
Canada.
Multi-Family Lending
Walker & Dunlop, LLC (WD) Zacks Rank #1, Outperform,
0.0% Yield, $658 Market Cap, Small Cap Value
WD is engaged in providing commercial real estate financial
services in the United States, with a primary focus on multifamily
lending. The Company also offers service loans for life insurance
companies, commercial banks and other institutional investors as a
loan broker. The Multifamily and FHA Finance groups of Walker &
Dunlop are focused on lending to property owners, investors, and
developers of multifamily properties across the country.
The Capital Markets and Investment Services groups provide a broad
range of advisory, financing, investment consulting and related
services. Walker & Dunlop's Healthcare Finance group provides
debt financing for healthcare properties.
The Company's Principle Investments include origination,
underwriting, execution and management of commercial real estate
opportunities across property types and geographies within the
continental United States. Walker & Dunlop, LLC is based in
Bethesda, Maryland.
HOME LOAN SERVC (HLSS): Free Stock Analysis Report
JAVELIN MTGE (JMI): Free Stock Analysis Report
NATIONSTAR MTGE (NSM): Free Stock Analysis Report
PHH CORP (PHH): Free Stock Analysis Report
WALKER & DUNLOP (WD): Free Stock Analysis Report
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