Jan

28

Survival of the Fittest: NLY and MFA

Pete @ 2:20 PM | | Start a Discussion 

27-nly.gifThose who follow our “Stocks to Watch” lists might have spied something interesting: two companies on last Wednesday’s winners list are involved in the mortgage industry and they have not been decimated by selling.

The two are Annaly Capital Management, Inc. (NYSE:NLY) and MFA Mortgage Investments (NYSE:MFA).

Are these companies exciting? Probably not, but it is evident that investors have taken notice that management (presumably) did the right thing and spared NLY and MFA from the chopping block. It’s Wall Street Darwinism.

Let’s take a look at the price action for NLY and MFA. As usual, the price bars are colored according to the status of our relative momentum indicator. Red = underperform. Yellow = neutral. Green = outperform. The dots are the InVivo.Stops. The 200-day moving average was been added because it is a widely-watched line in the sand.


Wall Street firms have a rating of 1.71 on NLY which Reuters equates to an Outperform. MFA has a rating of 2.00 which Reuters equates to an Outperform.

27-mfa.gif

Let’s look at some recent tidbits:

  • Two Stocks to Ride the Rate Cuts [Barrons.com/UBS Research]
    “POST THE SURPRISE-75 BASIS-POINTS reduction in the fed-funds rate on Jan. 22, we are reiterating our bullish stance on Annaly Capital Management and MFA Mortgage. These two companies benefit materially from Fed cuts and a steeper yield curve. We are incorporating UBS’ updated interest rate forecasts (fed-funds rate at 2.25% by third-quarter 2008) into our model, resulting in increases in our 2008 …”
  • UBS new price targets for NLY from $19.50 to $22 and MFA from $10 to $11. [All time high for NLY is $21.50 on June 2002 and all time high for MFA $11 on September 2003]
  • Avoiding the Subprime Slam
    The subprime crisis has also taken a toll on REITs, with Michael Farrell, Annaly Mortgage Mgmt. CEO, and CNBC’s Maria Bartiromo.
  • “FAQ” of Annaly Capital Management and “About Us” of MFA Mortgage Investments.
  • Chimera Investment Corporation (NYSE:CIM) was founded by Annaly Capital Management and owns 9.8% according to Chimera FAQ. Chimera Investment Strategy is “We invest in prime, jumbo prime and Alt-A residential mortgage loans, residential mortgage-backed securities, debt and equity tranches of CDO’s, commercial mortgage-backed securities, and consumer and non-consumer asset-backed securities. Our investment strategy is to take advantage of opportunities in the interest rate and credit environment, adjusting our strategy to the changing market conditions by shifting our asset allocations across these various asset classes as interest rate and credit cycles change over time.”

It appears that the managers of Annaly, Chimera and MFA Mortgage Investments didn’t get too carried away during the good times, and will continue to run their businesses in the same vein during the current tough times. It will be interesting to see how everything pans out once the smoke clears in the industry.

Just a last thought to ponder: Can “survival of the fittest” be applied to other industries? Home builders?

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