In this article we discuss the 5 best mortgage stocks to buy now. If you want to read our detailed analysis of the mortgage industry and housing market, go directly to 10 Best Mortgage Stocks To Buy Now.
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5. Lennar Corporation (NYSE: LEN)
Lennar Corporation is one of the 10 best mortgage stocks to buy now. The home construction company offers commercial mortgage loans for securitization and also provides mortgage lending services to average consumers. The company’s mortgage subsidiary Lennar Mortgage, formerly known as Eagle Home Mortgage, offers various home mortgage options including conventional loan, USDA loan, Jumbo loan, VA loan and refinancing services.
According to our database, the number of Lennar Corporation’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 52 hedge funds that hold a position in Lennar Corp. by the end of December, compared to the 60 funds in the third quarter. The biggest stakeholder of the company is Edgar Wachenheim’s Greenhaven Associates, with 7.5 million shares, worth $575 million.
4. Citigroup Inc. (NYSE: C)
For those looking to use mortgage lending services of major banks, Citigroup is a viable option. With a market cap of $137 billion, Citi offers some of the best and advanced home mortgage services in the U.S. In the housing crisis of 2008, Citigroup collapsed mainly due to its problematic mortgage-backed securities. But the bank has since improved its internal mechanisms. Jane Fraser was recently appointed as the new CEO of the bank.
There were 95 hedge funds in our database that held stakes in Citigroup Inc., compared to 91 funds in the third quarter. Khan Brothers is the biggest stakeholder in the company. Citigroup Inc. ranks 26th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
Oakmark Select Fund, in their Q3 2020 Investor Letter, said that they were able to distinguish value in Citigroup Inc. (NYSE: C) and still maintains their position in the company even after a bad performance during the pandemic.
Here is what Oakmark Select Fund has to say about Citigroup Inc. in their investor letter:
“Citigroup was our largest detractor for the period due to Covid-19-related concerns that have hurt the entire financial sector, as well as a handful of Citigroup-specific headlines that amplified near-term uncertainty. We believe that investors’ short-term focus can cause them to miss the bigger picture. The company has remained profitable throughout the Covid-19 crisis to date. It continues to operate with significant excess capital relative to regulatory minimums, even as it has added more than $10.5B to credit reserves year to date. We believe the company is proving its resilience during a real-life stress test. Yet, despite this positive early evidence, Citigroup currently trades at only 60% of tangible book value and slightly over 5x 2019 earnings per share. Given that we think the company’s normalized earnings power is greater than what it achieved in 2019, we find these valuation metrics especially attractive. As we move beyond the pandemic, we think investors’ focus will shift to the underlying quality of the business and they will value the resilience Citigroup demonstrated during this crisis.”
3. Wells Fargo & Company (NYSE: WFC)
Wells Fargo is one of the biggest banks and mortgage lenders in the U.S. Its consumer-lending platform accounts for more mortgages than any other service in the country. In February, the bank said that its mortgage origination was “still growing” on a year-over-year basis despite expectations of a slowdown this year. Wells Fargo recently agreed to sell Wells Fargo Asset Management to private equity firms GTCR LLC and Reverence Capital Partners for $2.1 billion.
As of the end of the fourth quarter, 99 hedge funds in Insider Monkey’s database of 887 funds held stakes in Wells Fargo & Company, compared to 90 funds in the third quarter. Warren Buffet’s Berkshire Hathaway is the biggest stakeholder in the company, with 52.4 million shares, worth $1.58 billion. Wells Fargo & Company ranks 23rd in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
“Most of us are familiar with Wells Fargo (WFC); they are one of the top 5 banks in the U.S. with nearly $2 trillion in assets. The last 5 years have not been good to Wells. They are on their 3rd CEO during that time, and the current one stays in New York City despite headquarters being in San Francisco. Wells Fargo opened millions of fake accounts for customers over several years, driven by an incentive system that compensated branches based on their account openings. This goes to show you the perverse power of incentives, if not properly balanced. To atone for their sins, Wells Fargo is operating under an asset cap which prevents the bank from growing and must demonstrate stronger risk management. Not that long ago, Wells Fargo was the most admired large bank on Wall Street, with the highest valuation and glowing reviews about its low cost of funds driving sustainably high returns on equity. Now, it has the lowest valuation on Wall Street and no one talks about the good old days with Wells.
I believe that there is nothing fundamentally wrong with Wells Fargo’s business that cannot be fixed, and once they can return to normal operations without the fake account nonsense then I expect they will return to earning returns slightly lower than historical norms. If Wells Fargo uses 100% of its earnings to repurchase share over the next 3 years, Wells can retire 25% of its outstanding stock. By 2023, WFC could earn $6+ per share. At 10x earnings, a very low multiple given the rest of the stock market trades at 22x earnings, Wells Fargo could fetch $60 per share. WFC’s current share price is $33 and our cost basis is around $25 per share. If it takes 5 years for Wells to get out of the penalty box and trade at $60 per share, we can earn a 20% annual return on our investment, including dividends.”
2. Bank of America Corporation (NYSE: BAC)
Ranking 2nd on our list of 10 best mortgage stocks to buy now is Bank of America, one of the country’s biggest banks, serving about 65 million customers. The bank recently announced to expand its Community Homeownership Commitment to $15 billion through 2025. The program includes a Down Payment Grant component and America’s Home Grant program. BofA said since the launch of the program, it has helped 21,000 individuals and families buy homes with easy loans.
Our database shows that 99 hedge funds held stakes in Bank of America at the end of December, versus the 88 funds in the third quarter. The company ranks 22nd in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
1. JPMorgan Chase & Co. (NYSE: JPM)
Topping our list of the 10 best mortgage stocks to buy now is JP Morgan, the biggest bank in the country. The company recently said that its trading revenue is rising in the first quarter of 2021. However, the bank’s CFO Jennifer Piepszak warned that this could change as the current strength is driven by equities. In the fourth quarter, the company posted an EPS of $3.79, crushing past the analysts’ consensus of $2.62 per share. Revenue in the period came in at $30.16 billion, above the Street’s estimate of $28.7 billion.
A total of 112 hedge funds tracked by Insider Monkey were long JPM at the end of December 2020, compared to 118 funds a quarter earlier. JPMorgan Chase & Co. ranks 17th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.