Time to Buy Oversold Annaly Capital Management, Inc. (NLY)

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Most well managed mREIT

American Capital Agency Corp. (NASDAQ:AGNC) is one of the most well managed mREIT and my personal favorite. The company experienced most book value erosion among the agency-only players during the first quarter. So, its management decided to rebalance its investment portfolio to better suit the current environment. As part of rebalancing, the management got rid of some of the 30-year fixed rate agency paper and reassured its commitment to actively manage its assets and hedges to create attractive opportunities. However, I believe these efforts might lead to a lower earnings potential in the future.

A hybrid mREIT

The reason why Invesco Mortgage Capital Inc (NYSE:IVR) was considered part of this investment thesis is because of the nature and design of its investment portfolio. Around 70% of Invesco’s investment portfolio is composed up of the fixed rate agency paper, while the 30-year fixed rate agency paper is a significant 57% of the entire portfolio. Therefore, the company acts much like an agency-only mREIT rather than a hybrid mREIT. That’s why I believe it’s one of the hybrid mREITs I would stay away from until its management decides to get rid of some agency exposure.

Conclusion

Given the sell-off, the positive facts pointed out above and the strategic efforts made by the management, I am bullish on Annaly Capital Management, Inc. (NYSE:NLY). Annaly’s management has ensured the safety of its book value, while not hurting the earnings potential. However, American Capital Agency Corp. (NASDAQ:AGNC)’s management’s decision to secure its book value might hurt its future earnings. Invesco Mortgage Capital Inc (NYSE:IVR), on the other hand is one hybrid mREIT I would stay away from.

The article Time to Buy Oversold Annaly Capital originally appeared on Fool.com and is written by Adnan Khan.

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.

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