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JimVanMeerten (65.25)

Is there a future in home mortgages?

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December 02, 2010 – Comments (1) | RELATED TICKERS: HTS

I'm going out on a limb today and adding Hatteras Financial (HTS) to the Barchart Van Meerten Speculative portfolio.

Before you all call me crazy let me introduce you to the word of the day "Underwriting".  That's a word that hasn't been visited by mortgage underwriters in quite some time.  In the last decade the underwriter would place a mirror under the borrower's nose and is they could detect a breath the loan was approved.

The world has changed.  I'm helping a family member sell a home to an FHA borrower.  The home passed title search, inspection and appraisal with flying colors but FHA is making the borrower just through so many fiery hoops that their credit approval has taken almost 6 months.  FHA has asked for everything but a note of reference by the borrower's first grade teacher.

Fannie and Freddie are requiring a return to traditional underwriting standards and that's my reason for looking to invest in a leveraged buyer of Federally backed mortgages.  My pick is Hatteras Financial for a speculative play.

Hatteras Financial Corp. 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.

The stock has great recent price momentum and has a 100% Barchart technical buy signal.  The price hit 16 new highs and is up 6.12% in the last month.  The price is around 31.28 which is above its 50 day moving average of 29.66.  Looking at the rise of 11.25% in the 50 day moving average in the last 20 trading sessions helps smooth out the momentum.  The Relative Strength Index is 77.33% and also rising.

Although Wall Street analysts are not willing to make solid projections they are looking for a 21.80% revenue growth next year and 9 have published buy reports with 5 more recommending their long term investors hold their positions.

Investor sentiment is high with the CAPS members on Motley Fool voting 214 to 17 that the stock will out perform the market.  The more experienced All Stars are voting 71 to 5 for the same result.

For the long term total return investor the stock has:

1 - 14.20% dividend yield

2 - 100% Barchart technical buy signal

3 - Wall Street brokerage firms publishing positive recommendations

4 - Positive investor sentiment

Jim Van Meerten is an advisor to Marketocracy Capital Managementwho uses his model portfolios not only to manage their mutual funds but also their clients Separately Managed Accounts. You can read his blogs about those model portfolios and investing here and on Barchart Portfolio Blogs. Please leave a comment below or emailJimVanMeerten@gmail.com.

Disclosure: Jim Van Meerten through Marketocracy Capital Management has an interest in the stocks mentioned in this blog. 

1 Comments – Post Your Own

#1) On December 03, 2010 at 9:32 PM, rd80 (97.08) wrote:

Hi Jim,

Thanks for the assessement of HTS.  I own the stock, but wouldn't add here because the premium over book value is getting a little steep.

I do think that as long as the Fed keeps short term rates pinned near zero, HTS and other mortgage REITs will continue to post those juicy dividends.

If it pulls back under $30, I'd consider adding to the position.  At today's price, I'm happy holding what I've got.

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