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
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
- 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
), Zacks Rank #1, Outperform, Small Cap Value, $607M Market Cap,
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.
) 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.
), 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
) 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
Walker & Dunlop, LLC
) Zacks Rank #1, Outperform, 0.0% Yield, $658 Market Cap, Small
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
HOME LOAN SERVC (HLSS): Free Stock Analysis
JAVELIN MTGE (JMI): Free Stock Analysis
NATIONSTAR MTGE (NSM): Free Stock Analysis
PHH CORP (PHH): Free Stock Analysis Report
WALKER & DUNLOP (WD): Free Stock Analysis
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