Top 12 Beaten-Down REITs Ready for a Rotation Rally

7. Orchid Island Capital, Inc. (NYSE:ORC)

Number of Hedge Fund Holders: 15

Year-To-Date Performance: -5.28%

Stock Upside: 10.78%

Orchid Island Capital, Inc. (NYSE:ORC) is one of the top beaten-down REITs ready for a rotation rally. On July 9, BTIG analyst Douglas Harter initiated coverage of Orchid Island Capital Inc. (NYSE:ORC) with a Neutral rating. This is BTIG’s first formal stance on Orchid.

Harter noted that Orchid Island Capital trades at a discount to its agency mortgage REIT peers; it has a price-to-book ratio of 0.97. This means investors are valuing the company slightly below the worth of its underlying assets. The analyst also noted that the stock carries a notably high dividend yield of 17.8%, and that this reflects the income-focused nature of mortgage REITs. Although he cautioned that such elevated yields often also signal higher perceived risk in the sector.

The analyst explained that the valuation discount is justified because Orchid Island Capital has a track record of generating lower economic returns compared with its peer group. It would otherwise be a sign the stock is unfairly cheap. Harter added that for BTIG to turn more positive on the shares, he would need to see the company’s relative returns improve compared with other agency mortgage REITs.

Independently of the analyst action, on June 22, Orchid Island Capital announced that its board of directors approved an increase to the company’s existing stock repurchase program. The approval added authorization for up to 25 million additional shares of common stock, and brings the total repurchase authorization to 26,612,580 shares.

Under the program, Orchid Island may buy back shares through open market transactions, block purchases, privately negotiated deals, or trading plans adopted under Rule 10b5-1 of the Securities Exchange Act.

Orchid Island Capital, Inc. (NYSE:ORC) is a specialty finance company structured as a REIT. It invests in residential mortgage-backed securities in the United States. Through its REIT structure, the company provides tax efficiency by distributing at least 90% of its REIT taxable income to shareholders.