Am I nuts to invest in adjustable rate mortgages?
I needed a new stock for my Financial Tides/BarChart VMNHI portfolio that I have on Marketocracy. I screened for stocks hitting new highs trading over 100K shares a day and went through my filtering process and came up with Hatteras Financial Corp - HTS.
HTS is an externally-managed mortgage real estate investment trust formed in 2007 to invest in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or U.S. Government-sponsored entities, such as Fannie Mae, Freddie Mac or Ginnie Mae. Hatteras Financial Corp. is managed and advised by Atlantic Capital Advisors LLC.
You might think I'm totally nut to invest is these risky assets but they are all guaranteed by governmental agencies.
The stock has hit 15 new highs in the last 20 sessions and 5 new highs in the last 5 sessions. There has been a 15.84% price appreciation in the last 65 days. BarChart's technical indicators signal 11 buys and 2 holds for an 88% overall buy rating.
Right now none of the major brokerage firms are turning out research reports but their not trashing it either. The stock has had increasing revenue, EPS and dividend increases since it was formed and with the governmental agency backing why would that change?
Over on Motley Fool CAPS the members vote that it will out perform the market 114 to 19 with the All Stars voting 36 to 7. The Wall Street columnists following the stock have positive recommendations6 to 1. The lone dissenter is Jim Cramer and the stock has appreciated 11.16% since he gave a sell signal.
1 - The stock passes my screening process:
2 - HTS is hitting new highs better than 50% of the time No major brokerages are trashing the stock 3 - Other rating sites confirm my analysis
Recommendation: You may think I'm crazy for adding an adjustable rate mortgage holding company to my portfolio but I'll go with the gov't agency backing. Adding to VMNHI around 30.90 with a tight stop loss at no lower than 29.
Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email FinancialTides@gmail.com
Disclosure: No position in HTS at time of publication