Since Annaly is currently exclusively invested in Agency MBS, its closest competitors include American Capital Agency Corp. (NASDAQ:AGNC) and ARMOUR Residential REIT, Inc. (NYSE:ARR). While American Capital is largely invested in fixed rate securities, like NLY, Armour Residential has a relatively large proportion of adjustable-rate securities in its portfolio. Both American Capital Agency and Armour Residential are considered to have prepayment protected portfolio, which is why they reported lower CPRs for their MBS portfolio at the end of the third quarter of the prior year. American Capital and Armour Residential are currently yielding 15.9% and 13.4%, respectively. Both are currently trading at 13% and 9% premiums to their third quarter book values.
I believe Annaly Capital Management, which is currently yielding 12%, presents an excellent long term investment opportunity. The company might face short-term headwinds due to the Fed’s continuous meddling. However, the hike in mortgage rates since the beginning of this year signals that the situation is beginning to reverse. I believe if rates continue to increase, Annaly Capital could get some support for its interest rate spread.
The article Despite No Surprises Is Annaly Still a Buy? originally appeared on Fool.com and is written by Adnan Khan.
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