Javelin Mortgage Investment (NYSE:JMI)

CAPS Rating: 3 out of 5

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Member Avatar InveniamViam (29.09) Submitted: 8/30/2013 11:13:40 AM : Outperform Start Price: $10.55 JMI Score: -4.37

I am not normally a fan of REIT's although this one has certainly peaked my interest. As most who follow the mREIT world know, the big REIT names have been bloodied over the past few months, mostly due to the Fed's announcement to begin tapering their bond purchasing and winding down their balance sheet. I think some of the well-known names in REITs have been completely oversold. As such I have been looking into some of the better managed ones. And whether you agree with it or not, I actually don't believe the Fed will be able to unwind its balance sheet and stop it's open market purchases as the market has become used to its involvement.

One of the items I look for in REIT's is whether management's interests have been aligned with those who hold shares of the REIT. In this case, I am seeing significant insider purchases at much higher prices with no selling by insiders. I very much like this fact. One director purchased 125,000 shares at nearly $2.5MM a little less than a year ago. If this isn't a strong endorsement, I am not sure what would be. The next would be the financials. It is trading at about 0.8 book value and 6 times forward earnings. I actually think their earnings are a tad understated but we will see in the quarters to come. They have maintained their dividend since inception and the $0.23 per month is guaranteed through the December 2013 payment. I would not consider the dividend "guaranteed" beyond that date although I would expect any haircut to it to be small.

This REIT is definitely on the risky side, even with the large dividend, so please be sure you completely understand what they do prior to purchasing shares. This is more of a hybrid type of REIT in that management has a little more leeway in purchasing securities on both the commercial and residential side, with or without the "guarantees" from the Freddie's and Fannie's. Be sure you understand their full portfolio prior to making a real life investment decision. My short term price target is $15 a share with a longer term target closer to $19. As with most of these issues, I will be considering selling calls against any real life shares if the share price gets close to my target.

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