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Mortgage & Related Services Outlook Looks Bright on Low Rates
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The Zacks Mortgage & Related Services industry comprises mortgage-related loans, refinancing and other loan servicing facilities providers. Players in this industry are somewhat dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers’ decision to take mortgage.
The companies also generate investment income by investing in several financial assets such as residential or commercial mortgage-backed securities, and asset-backed securities. Further, the firms make equity investments in mortgage-related entities, among others.
Here are the industry’s three major themes:
The central bank’s accommodative monetary policy stance on interest rate has provided breather to mortgage lenders as decline in interest rates increases demand for loan originations or refinancing by making cost of borrowing comparatively less expensive. Also, indications of central bank keeping interest rates unchanged this year, is expected to attract homebuyers’ interest, in order to benefit from lower rates
Some clarity on the U.S.-China trade war front along with strong labor market indicating higher incomes and rising levels of consumer spending, might lead to more consumers seeking mortgage loans for home purchases.
Digitization, though picked pace late in the mortgage industry, is now at its peak and has helped the companies to enhance customer experience, lowered costs by saving compensation expenses and reduced the possibility of frauds.
Zacks Industry Rank Reflects Rosy Prospects
The Zacks Mortgage & Related Services industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #112, which places it at the top 44% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Over the past six months, the industry’s earnings estimates for the current year have been revised 4.8% upward.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Mortgage & Related Services industry has underperformed the Zacks S&P 500 composite over the past year, though it has outperformed the broader Zacks Finance sector.
The industry has registered growth of 17.7% during this period compared with the S&P 500’s rally of 23.8%. The broader sector has witnessed growth of 10%.
One-Year Price Performance
Industry’s Valuation
On the basis of price-to-book ratio (P/BV), which is commonly used for valuing mortgage loan providers, the industry currently trades at 2.07X compared with 4.5X for the S&P 500.
This compares to the industry’s highest P/BV of 2.76X and median of 2.04X over the past five years.
Price-to-Book Ratio (TTM)
As finance stocks typically have a lower P/BV ratio, comparing mortgage loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/BV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/BV of 2.81X for the same period is way above the Zacks Mortgage & Related Services industry’s ratio, as the chart shows below.
Price-to-Book Ratio (TTM)
Bottom Line
Stocks in the Mortgage & Related Services industry are expected to benefit from relatively lower interest rates, lower unemployment levels and improving operating environment. Also, with rise in demand for refinancing, mortgage business is likely to prosper. Further, the companies in this space are looking for other sources of income, and are building up on the technological front.
We are presenting two stocks with Zacks Rank #2 (Buy) that investors may consider betting on.
Essent Group Ltd. (ESNT - Free Report) : The stock of this Hamilton, Bermuda-based lender has gained 31.7% over the past year. The Zacks Consensus Estimate for the current-year earnings has been revised 2.6% upward over the past 30 days.
Price and Consensus: ESNT
Ellington Financial LLC (EFC - Free Report) : The consensus estimate for current-year earnings for this Old Greenwich, CT-based financial service provider has moved 1.1% higher over the past 30 days. The stock has rallied 11.3% over the past 12 months.
Price and Consensus: EFC
Also, investors may hold on to the following stock, as it has been seeing positive earnings estimate revisions, and has solid long-term growth potential. The stock currently carries a Zacks Rank #3 (Hold).
PennyMac Financial Services, Inc. (PFSI - Free Report) : The consensus estimate for current-year earnings for this Moorpark, CA-based financial service provider has moved 15.1% higher over the past 90 days. The stock has rallied 59% over the past 12 months.
Price and Consensus: PFSI
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Image: Bigstock
Mortgage & Related Services Outlook Looks Bright on Low Rates
The Zacks Mortgage & Related Services industry comprises mortgage-related loans, refinancing and other loan servicing facilities providers. Players in this industry are somewhat dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers’ decision to take mortgage.
The companies also generate investment income by investing in several financial assets such as residential or commercial mortgage-backed securities, and asset-backed securities. Further, the firms make equity investments in mortgage-related entities, among others.
Here are the industry’s three major themes:
Zacks Industry Rank Reflects Rosy Prospects
The Zacks Mortgage & Related Services industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #112, which places it at the top 44% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Over the past six months, the industry’s earnings estimates for the current year have been revised 4.8% upward.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Mortgage & Related Services industry has underperformed the Zacks S&P 500 composite over the past year, though it has outperformed the broader Zacks Finance sector.
The industry has registered growth of 17.7% during this period compared with the S&P 500’s rally of 23.8%. The broader sector has witnessed growth of 10%.
One-Year Price Performance
Industry’s Valuation
On the basis of price-to-book ratio (P/BV), which is commonly used for valuing mortgage loan providers, the industry currently trades at 2.07X compared with 4.5X for the S&P 500.
This compares to the industry’s highest P/BV of 2.76X and median of 2.04X over the past five years.
Price-to-Book Ratio (TTM)
As finance stocks typically have a lower P/BV ratio, comparing mortgage loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/BV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/BV of 2.81X for the same period is way above the Zacks Mortgage & Related Services industry’s ratio, as the chart shows below.
Price-to-Book Ratio (TTM)
Bottom Line
Stocks in the Mortgage & Related Services industry are expected to benefit from relatively lower interest rates, lower unemployment levels and improving operating environment. Also, with rise in demand for refinancing, mortgage business is likely to prosper. Further, the companies in this space are looking for other sources of income, and are building up on the technological front.
We are presenting two stocks with Zacks Rank #2 (Buy) that investors may consider betting on.
(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)
Essent Group Ltd. (ESNT - Free Report) : The stock of this Hamilton, Bermuda-based lender has gained 31.7% over the past year. The Zacks Consensus Estimate for the current-year earnings has been revised 2.6% upward over the past 30 days.
Price and Consensus: ESNT
Ellington Financial LLC (EFC - Free Report) : The consensus estimate for current-year earnings for this Old Greenwich, CT-based financial service provider has moved 1.1% higher over the past 30 days. The stock has rallied 11.3% over the past 12 months.
Price and Consensus: EFC
Also, investors may hold on to the following stock, as it has been seeing positive earnings estimate revisions, and has solid long-term growth potential. The stock currently carries a Zacks Rank #3 (Hold).
PennyMac Financial Services, Inc. (PFSI - Free Report) : The consensus estimate for current-year earnings for this Moorpark, CA-based financial service provider has moved 15.1% higher over the past 90 days. The stock has rallied 59% over the past 12 months.
Price and Consensus: PFSI
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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