PennyMac Mortgage Investment Trust (PMT), Annaly Capital Management Inc. (NLY): Is Your mREIT Least Preferred Amid QE Tapering?

Page 2 of 2

The only positive stock price driver for American Capital Agency is if the Fed decides to hold on to easing for a longer period of time. That way, American Capital should benefit from a wide portfolio spread due to the current steep yield curve and boost earnings and dividends.

Valuations

PennyMac Mortgage Investment Trust (NYSE:PMT)’s book value should benefit as its distressed book of whole loans is refurbished and the fair value marks increase. The stock is currently trading at 1.08 times its book value multiple, which is well below the premium it demanded during prior quarters. Therefore, I believe the stock has simply gotten too cheap. Citigroup estimates a 1.35 times price to book value multiple for it.

Annaly Capital Management Inc. (NYSE:NLY) is trading at a 10% discount to its recent quarter’s book value. This is in contrast to the moderate premium on which the stock has been exchanging hands over the past few months. With the presence of positive stock price drivers, I feel the stock is cheaply valued.

American Capital Agency is changing hands at a 9% discount to its book value, which is in contrast to the moderate premium the stock has been trading over the past few months. Citigroup also has a moderate premium estimate for the stock. While American Capital Agency is also trading below its historical book value premium, I think the lack of positive drivers at the time make the stock unattractive.

Conclusion

While the entire mREITs sector is trading well below its historic lows, only a few mREITs have positive stock price drivers. This article featured PennyMac Mortgage Investment Trust (NYSE:PMT) and Annaly Capital Management Inc. (NYSE:NLY) as two such companies with positive revenue and dividend trajectories. Therefore, I am bullish on them.

The article Is Your mREIT Least Preferred Amid QE Tapering? originally appeared on Fool.com.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2