No doubt so called "investors" are running away from mortgage REIT stocks these days such as Annaly (NLY) or the like. I smell blood on the street now with panic selling. I have been really waiting for such a day to come and my little patience has paid off, in a big way!
I talked about NLY several times and latest one was in Feb this year (see here). A similar panic selling was also ongoing at that time and I advised people to buy. My advice stays the same this time that this is a great opportunity to buy NLY, which is yielding over 13%, or even better, American Capital Agency Corp (AGNC), which is yielding a salivating rate of over 16%. So what has caused such a panic for NLY and AGNC to have dropped over 15% in the past 2 weeks? Nothing extraordinary actually. The reason is QE3. Since the main effect of QE3 is to suppress the mortgage rate, this has caused a reduction of the interest rate spread, the key factor for mortgage REIT companies to earn money. This in turn has led such companies to miss earning estimates and reduce the dividend payout. It is understandable that such a poor earning and reduced dividends should lead to lower stock prices but when there is panic selling and their prices have been over corrected, then it becomes a great opportunity. At the current price around $15 for NLY and $30 for AGNC, they are trading hands below their book values (90% discount for NLY and 95% for AGNC). Over years, whenever they were below their book values, brave investors got a great deal by locking in their high dividend yield as well as a potential of substantial capital gains. A win win situation I don't want to miss.
Of course, always mind your position size, as it could be volatile and may stay in this depressed level for some time.
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