In this article, we present the list of top 10 stock picks of Ron Mass’ Almitas Capital at the end of the second quarter.
The hedge fund industry comprises many players who are usually differentiated based on strategies they deploy to deliver superior returns to their investors while keeping risks under control. Some funds are classified as multi strategies meaning they employ multiple strategies across asset classes to diversify their portfolios. In contrast, others focus on just one strategy – value, growth, activism, macro and others – with the aim of being the best in that category. Santa Monica, California-based Almitas Capital, is one such fund.
Founded in 2012 by Ronald “Ron” Mass, Almitas Capital manages investment portfolios utilizing primarily closed-end funds, mortgage REITs, and value equity strategies. The fund employs fundamental and statistical analysis to identify debt and equity securities trading at discounts to intrinsic value with catalysts that can help bridge that gap. Prior to founding Almitas, Mr. Mass was a senior portfolio manager at Western Asset Management for over 20 years. At Western Asset Management, Mr. Mass headed the asset-backed securities (ABS) and mortgage-backed securities (MBS) portfolio management teams. He graduated from the University of California, Los Angeles, with a bachelor’s degree in economics and business. Before joining Western Asset Management, he was a research associate at Credit Suisse First Boston, which he joined right after college. He is also a CFA Charterholder and a member of the CFA Institute.
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Almitas Capital’s Portfolio
Almitas Capital’s last filed Form ADV shows that the firm manages assets north of $600 million. At the end of June, the aggregate value of Almitas Capital’s 13F holdings was $193.45 million, representing an increase of 15.4% from the $167.637 million reported by the fund at the end of March. Since the fund employs strategies that identify securities trading at a discount, most of the securities it was invested in at the end of Q2 were ETFs, REITs and business development companies (BDCs) which are entities that updated their NAVs regularly. Almitas Capital’ top 10 stock picks, which included names like Great Ajax Corp. (NYSE:AJX), AGNC Investment Corp. (NASDAQ:AGNC), and PennantPark Investment Corporation (NYSE:PNNT), in aggregate, accounted for 56.73% of its 13F portfolio value at the end of Q2.
Our Methodology
At Insider Monkey, we cover the portfolios of 895 hedge funds, closely tracking the stocks they buy and sell. We selected the ten stocks discussed in this article based on the 13F regulatory filing submitted by Almitas Capital with the SEC for the quarter ending June 30. We haven’t included Altimas Capital’s investments in ETFs in our rankings.
10 Best Stocks to Buy According to Ron Mass’ Almitas Capital
10. Radian Group Inc (NYSE:RDN)
Almitas Capital’s Stake Value: $2,200,000
Percentage of Almitas Capital’s 13F Portfolio: 1.13%
Number of Hedge Fund Holders: 31
Founded in 1977, Radian Group Inc is a mortgage insurance company headquartered in Philadelphia, Pennsylvania. It specializes in mortgage insurance and provides credit enhancement services to the mortgage lending industry in the United States. Radian Group Inc also offers risk management products and services to financial institutions and investors in the secondary mortgage market.
Despite the carnage in the broader market this year, Radian Group Inc’s stock has managed to buck the trend and has lost less than 2% of its value year-to-date. On August 18, Bank of America analyst Mihir Bhartia released a note in which he upgraded Radian Group Inc’s stock to ‘Neutral’ from ‘Underperform’ while upping his price target to $24 from $22.5. In his note, Mr. Bhartia explained his decision saying, “Radian’s upgrade to Neutral reflects its impressive Q2 capital return balanced by meaningful execution risk for its homegenius segment. At current prices, the stock offers 3% upside potential/8% total return.”
9. Safeguard Scientifics, Inc (NYSE:SFE)
Almitas Capital’s Stake Value: $2,661,000
Percentage of Almitas Capital’s 13F Portfolio: 1.37%
Number of Hedge Fund Holders: 8
Almitas Capital upped its stake in Safeguard Scientifics, Inc by 2% to 713,445 shares in Q2. However, during the same period, John A. Levin’s Levin Capital Strategies and Jim Simons’ Renaissance Technologies slashed their holding in the company by 74% to 20,553 shares and by 64% to 39,934 shares, respectively.
Safeguard Scientifics, Inc is a private equity and venture capital holding company that provides capital and management resources to early- and growth-stage technology-driven businesses in healthcare, financial services and digital media industries. It has stakes in many large and small portfolio companies but has not been actively investing for the past few years. Instead, Safeguard Scientifics, Inc has been liquidating its holding over the years, which can be gauged by its stock price movement. Since touching the $20 level in early 2014, Safeguard Scientifics, Inc’s stock has been on a consistent decline and currently trades down by more than 50% year-to-date near the $4 level.
8. BrightSpire Capital, Inc. (NYSE:BRSP)
Almitas Capital’s Stake Value: $2,806,000
Percentage of Almitas Capital’s 13F Portfolio: 1.45%
Number of Hedge Fund Holders: 35
With a jaw-dropping dividend yield of 8.62% and a stock that trades around the $8 level, it is no wonder that BrightSpire Capital, Inc. made it to Insider Monkey’s lists of 5 Best Dividend Stocks Under $10 and 10 Best Stocks under $10 in 2022 recently.
Formerly known as Colony Credit Real Estate, Inc., the mortgage REIT changed its name to BrightSpire Capital, Inc. in June 2021. The company primarily operates in the west and southwestern part of the United States, which account for 70% of its operations. It acquires, finances and manages a portfolio of commercial real estate mezzanine loans, senior mortgage loans, preferred equity, debt securities, and net leased properties.
For its most recent quarter, BrightSpire Capital, Inc. reported non-GAAP earnings per share of $0.24 on revenue of $55.33 million on August 3, beating analysts’ expectations by $0.01 and $2.43 million, respectively.
7. New York Mortgage Trust, Inc. (NASDAQ:NYMT)
Almitas Capital’s Stake Value: $2,893,000
Percentage of Almitas Capital’s 13F Portfolio: 1.49%
Number of Hedge Fund Holders: 14
Almitas Capital boosted its stake in New York Mortgage Trust, Inc. by 55% during the second quarter. Like BrightSpire Capital, Inc., New York Mortgage Trust, Inc. is a mortgage REIT which acquires, invests in, finances, and manages mortgage-related multi-family and single-family residential assets. The company was founded in 2003 and currently manages a portfolio worth $4.6 billion.
New York Mortgage Trust, Inc.’s stock has lost one-third of its value over the previous year, mainly due to the company’s poor financial performance during that time. In the trailing twelve months, New York Mortgage Trust, Inc. has reported a net loss of $107.4 million on total revenue of $135.8 million. Despite the lackluster financial performance, the REIT still pays a quarterly dividend of $0.10 per share, which translates into an excellent annual dividend yield of 14.18% based on its last closing price.
6. Ladder Capital Corp (NYSE:LADR)
Almitas Capital’s Stake Value: $3,089,000
Percentage of Almitas Capital’s 13F Portfolio: 1.59%
Number of Hedge Fund Holders: 8
Ladder Capital Corp’s stock might have lost only around 20% of its value since the first quarter of 2018, but its popularity among smart money investors has come down even more drastically during this period. Among funds covered by Insider Monkey’s database, only 8 disclosed a stake in this mortgage REIT at the end of Q2 this year, down from 28 at the end of Q1 2018. After boosting its stake by 234% during Q2 to nearly 1.5 million shares, billionaire Israel Englander’s Millennium Management held the largest stake in Ladder Capital Corp among hedge funds we track.
Since its inception in 2008, Ladder Capital Corp has made over $44 billion in investments and currently manages assets worth close to $6 billion. The REIT is unique in the sense that it is amongst the very few mortgage REITs today that are managed internally, with insiders owning 11% of all of its outstanding shares. In addition, 98% of Ladder Capital Corp’s loan portfolio consists of first-tier loans, and its loan-to-value ratio stands at 68%, making it much safer than most REITs.
5. PhenixFIN Corporation (NASDAQ:PFX)
Almitas Capital’s Stake Value: $3,637,000
Percentage of Almitas Capital’s 13F Portfolio: 1.88%
Number of Hedge Fund Holders: 1
Almitas Capital was the only hedge fund among funds tracked by Insider Monkey that held a stake in PhenixFIN Corporation at the end of the second quarter. Founded in 2010, PhenixFIN Corporation is a New York-based business development company. It invests primarily in privately negotiated debt and equity securities of small and middle market companies. However, over the past few years, it has not been making many new investments, and its stock price reflects that.
The company, formerly known as Medley Capital Corp., went for a 1 for 20 reverse stock split in 2020 after its stock went below the minimum price required to continue being listed on the NYSE. Shortly after that, it announced that it would change its name to PhenixFIN Corporation and transfer the listing of its common shares to the Nasdaq Global Market from the New York Stock Exchange. At the end of June 2022, the net asset value of PhenixFIN Corporation stood at $129.1 million, implying a close to 40% discount from its market capitalization of around $80 million.
4. MFA Financial, Inc. (NYSE:MFA)
Almitas Capital’s Stake Value: $9,673,000
Percentage of Almitas Capital’s 13F Portfolio: 5%
Number of Hedge Fund Holders: 15
MFA Financial, Inc. was the only stock among Almitas Capital’s top 10 stocks in which the fund had initiated a stake during the second quarter. Like several other top stock picks of Almitas Capital, MFA Financial, Inc. is also a mortgage REIT and boasts an unusually high dividend yield. The company made it to Insider Monkey’s list of 5 Penny Stocks that Pay Dividends in January. However, it went for a 1 for 4 reverse stock split in April this year which took it out from the penny stock zone. Nonetheless, it still made it to our 5 Best Dividend Stocks on Robinhood list published in June.
A large part of MFA Financial, Inc.’s unusually high dividend yield of 15.75%, which it currently sports, can be attributed to its stock price movement over the past many quarters. MFA Financial, Inc.’s stock has lost 42% and around 70% of its value over the past one and five years, respectively. This stock price decline, nonetheless, has made the stock considerably cheap from a valuation perspective. It currently trades at a trailing non-GAAP price to earning multiple of 4.9 and a price to book multiple of only 0.52.
3. PennantPark Investment Corporation (NYSE:PNNT)
Almitas Capital’s Stake Value: $15,129,000
Percentage of Almitas Capital’s 13F Portfolio: 7.82%
Number of Hedge Fund Holders: 11
Apart from Almitas Capital, other hedge funds tracked by Insider Monkey that increased their holdings in PennantPark Investment Corporation during the second quarter included James Morrow’s Callodine Capital Management and billionaire Israel Englander’s Millennium Management. While Callodine Capital Management upped its stake slightly by 2% to 1.81 million shares, Millennium Management boosted its holdings by 19% to 381,804 shares.
PennantPark Investment Corporation is a business development company that functions like a private equity fund investing in direct and mezzanine investments in middle market companies. Earlier in the year, analysts at Raymond James reiterated their ‘Outperform’ rating on PennantPark Investment Corporation’s stock while upping their price target to $9 from $8, which represents a potential upside of close to 40% from the stock’s last closing price.
2. Great Ajax Corp. (NYSE:AJX)
Great Ajax Corp. 7.25 CV SR NT 24 (NYSE:AJXA)
Almitas Capital’s Stake Value in AJX: $6,246,000
Percentage of Almitas Capital’s 13F Portfolio: 3.22%
Almitas Capital’s Stake Value in AJXA: $16,907,000
Percentage of Almitas Capital’s 13F Portfolio: 8.73%
Number of Hedge Fund Holders: 9
Almitas Capital held an equity stake in Great Ajax Corp., consisting of 651,328 shares and the company’s 7.25% convertible senior notes due on 4/30/2024 worth $16.9 million at the end of Q2. Considering the fund’s total exposure to the company, Great Ajax Corp. ended up becoming Almitas Capital’s second top stock at the end of June. Because of its high dividend yield of around 12% and low stock price, Great Ajax Corp. was another stock from Almitas Capital’s portfolio that featured in Insider Monkey’s recently published lists of 10 Dividend Stocks with Over 10% Yield and 5 Best Dividend Stocks Under $10.
On August 26, the company announced that its unit Great Ajax Operating Partnership had closed a private offering in which the latter raised $110 million by issuing 8.875% senior unsecured notes due in September 2027. These notes would be guaranteed by Great Ajax Corp. and two of its subsidiaries. All three analysts from Wall Street who cover the stock currently have a ‘Buy’ rating on it with a consensus price target of $14.67, representing a potential upside of 63% from the stock’s last closing price.
1. AGNC Investment Corp. (NASDAQ:AGNC)
Almitas Capital’s Stake Value: $22,555,000
Percentage of Almitas Capital’s 13F Portfolio: 11.65%
Number of Hedge Fund Holders: 18
Almitas Capital more than doubled its stake in AGNC Investment Corp. by 116% to 2 million shares, propelling the company to the top spot in the fund’s 13F portfolio at the end of June. Having gone through Almitas Capital’s other top picks, it wouldn’t surprise the readers that even AGNC Investment Corp. is a REIT that flaunts a very high dividend yield. However, the stock’s high dividend yield hasn’t helped it claim the same popularity among smart money investors as it did two years ago. Amongst the hedge funds covered by Insider Monkey, the number of funds that disclosed a stake in AGNC Investment Corp. fell by half to 19 at the end of June this year from 38 at the end of June 2020.
On August 7, through a press release, the company announced that for gross proceeds of $150 million, it had priced a public offering of 6,000,000 depositary shares with a liquidation preference of $25.00 per share. Each of the depositary shares issued by AGNC Investment Corp. represents a 1/1,000th interest in a share of the company’s 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock. In June, analysts at Keefe, Bruyette & Woods upgraded the stock to ‘Outperform’ from ‘Market Perform’ and also upped their price target to $13.25 from $12.25.
You can also look at 5 Best Stocks to Buy According to ‘Warren Buffett of Brazil’ and BlueDrive Global Investors’ Latest Portfolio: Top 7 Stock Picks
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This article is originally published at Insider Monkey.
