By Admin on May 6, 2009 in Investing
Dom asked:
I am looking for a thoughtful analysis on what is the best few mortgage companies out there right now. I invest and I see that everything has fallen pretty badly. So based on your research, tell me why you believe that the stock is in good shape.
I am looking for a thoughtful analysis on what is the best few mortgage companies out there right now. I invest and I see that everything has fallen pretty badly. So based on your research, tell me why you believe that the stock is in good shape.
I better not hear, “Because it can’t go any lower”, “because I looked at the chart” or because Cramer said it is good.
I do a compbination of fundamental and charting to come to my answers. As you suggest, the sector isn’t done dying yet. I did a quick look at the sector and performance and tried to find fundamentally sound companies that show some reasonable pattern of potential trading ranges that are likely to NOT be further impacted as much as other banks may be due to sub-prime mortgages. Some of the best ones will be stocks that have taken a bath on their earnings in the trailing 3 or 4 quarters but have begun to rebound in the last two or three. Here’s where I end up (Note: I have NOT purchased any of these stocks as I’m currently buying against high performing but oversold retail. I’ve add these to my watch list so they would be potential investments for me):
1. FFIC (Flushing Financial Corp) – Company is a holding company for a stock chartered bank. Their main mortgage activity is originating 1 to 4 family properties. It does have a focus on mixed use properties which I find interesting as these properties have a revenue component to them rather than just a high value mortgage.
– Revenue is growing at just under 10% with EPS growing being about 8%. They carry a 3% dividend as well. Good cash flow and liquidity. From a value perspective it’s profitability is above industry average and it’s ROE is about 20% higher than the industry.
– From a chart perspective, The company has a pretty tight trading range… it almost looks like it could be a 6 or 12 month channel play. Since it’s rise in the 2004, it has not traded below $14.50. It recently had a small breakout back up toward it’s traditional high around $19 but it was short lived, from what I can tell on greater market sympathy. The stock movement and bollinger bands suggest it’s going to find a bottom no lower than around $15 (but this can change). I don’t believe it can be timed well given the volatility of the market so I’d watch it over the next week or so and try and pick it up anywhere in the $15 – $15.50 range. It’s possible the bottom could fall out and it could see $14 again and I can’t tell you how likely but it doesn’t feel like high odds from what I’m seeing. The stock is starting to move to an oversold side suggesting it will consolidate and begin to move up. From its pattern, I’d suggest it will take a return to around the $17 – $18 range in the next several months so the real opportunity for a $2 – 3 / share bump and out. Given the current price of around $15, a $3 dollar bump is about a 20% return in the next few months. Not bad for a channel stock.
– Finally, from an earnings perspective, the stock is classic. Bad earnings in 3 of the 4 trailing quarters and its beat earnings in 2 of the current 3 quaters.
– It’s also trading within about 5% of its historic low.
BCS – Barclays PLC
Barclays is a UK bank that is true Global bank. They are respected name with strong fundamentals. They have an ROE of over 25% in an industry that averages 17%. They have a $1.86/share annual dividend (currently about 4%) witha 3 year dividend growth rate of 14%.
They are trading at about 6% above their 52 week low and are in a free fall from $60. On 11/15, they announced a $2.7B write down on sub prime. The write down was viewed as conservative and although there’s still a lot on the books they seem to be covering it with debt paper. Provided they don’t do a follow on, the stock is past the bad.
I like Barclays because they are traditionally conservative and a well run company. They’ve gotten caught in the maelstrom of the market and I think the recent nose dive is the dive they’re going to take. How much farther will it go??
It’s current year low is around $38 and the charts suggest it will test them, if not fall straight through them. It hit a bottom got a dead cat bounce and then fell after challenging its 50 day average. So, it’s going to have to build more support at the bottom before it returns to some positive. OTOH, any good news in the industry, could well turn it quickly. Because November was sooo bad, the pundits are saying December may be better. There is no range tightening in the bollinger bands suggesting its got more work to do before it has enough support to find a bottom. I’d watch it as I think it might find a home closer to the $35 / share range.
– The great news with this stock is that it’s got strong odds of recovery and will see it’s $60 per share high again within the next 18 months (IMHO).
I like these two. One is more of a channel play you can watch for quicker bumps. Barclays, to me is a long term high quality play. The stock is earning better than its peers, I think it’s growth is around 10% and it is a HUGE candidate to get swallowed up in the continued global consolidation.
I hope this helps.
techbankguy | May 7, 2009 | Reply
None.
No need to try to catch a falling knife. Plenty of easy money lying around.
slavaret2 | May 8, 2009 | Reply