All too often, traders will move their capital into a sector
that's hot, only to watch the stock they select lose value; other
times we see perfectly good companies losing share value because
their peers or sector are falling out of favor.
Today's Bear of the Day,PennyMac Mortgage
(Zacks Rank #5) might have a little bit of both going on.
PennyMac Mortgage Investment Trust is a real estate investment
trust. The Company operates as a specialty finance company that
will invest primarily in residential mortgage loans and
mortgage-related assets. A substantial portion of the
mortgages they acquire may be distressed and acquired at
discounts to their unpaid principal balances.
Their 10%+ dividend makes them very attractive and since the
housing market is flourishing, they should be a raging buy,
While the housing sector has been booming, the one-two punch
from PMT is the fact that PennyMac buys distressed debt from FDIC
liquidations of failed banks, US Treasury Legacy Loans Program
auctions, and direct acquisitions from mortgage and insurance
companies and foreign banks.
If less and less banks and loans are stressed or defaulting in
this improving economy, then theoretically they have fewer loans
to buy and profit from.
Second, a rising interest rate environment is not favorable
for a company like PennyMac. Even though the Fed is a ways
off from actually tightening, even a change in monthly bond
purchases could quickly send mortgage rates higher (they are up
over a 1% in the last 70 days or so) and stifle growth in
A Silver Lining?
Even though shares of PMT have dropped almost 25% from a high of
over $29.00 in February, to their current value of just under
$22.00, there might still be high risks here.
Shareholders and their attorneys are investigating CEO
Stanford L. Kurland on claims of self-dealing after certain
statements that were made in an IPO statement back in February of
this year when PennyMac Financial Services filed a Registration
Statement to be spun off by PMT.
A look at the Zacks Price & Consensus chart shows a sharp,
negative trajectory in FY2013 and 2014 earnings estimates. This
drop is commiserate with the drop in share price and while the
forward P/E of 7 and dividend yield of over 10% seem very
attractive, there could be some more pain before this situation
Estimates for the current quarter and Q3 have come down
dramatically as well and ESPs are negative for all periods.
Perhaps this company has been beaten down a little too much
here, but I would wait to see what the earnings report shows on
August 1st before jumping in. There are way too many moving
parts to this story and the fact that analysts have gotten this
aggressive leads me to believe there is really fire behind all
If you want to buy a mortgage related stock with a little less
volatility and risk, check outJP Morgan-Chase
(Zacks Rank #2) or America's largest mortgage servicer, Wells
(Zacks Rank #2).
Jared A Levy is one of the most highly sought after traders in
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JPMORGAN CHASE (JPM): Free Stock Analysis
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