The Thanksgiving week has historically been bullish for stock markets. However, with the COVID-19 cloud looming over the typically favorite sectors like personal goods, travel and leisure, and general retailers, it might be wise to veer toward the mortgage REIT or mREIT industry that has been doing well in the recent months.
And why not? The Zacks
REIT and Equity Trust industry that houses mREITs carries a Zacks Industry Rank #110, which places it in the top 43% of more than 250 Zacks industries.
Moreover, over the past six months, the industry has rallied 30.1%, outperforming the S&P 500 Index’s upside of 19.5%. And now with the overall optimism in the market, thanks to positive developments on the COVID-19 vaccine front and better-than-expected U.S GDP acceleration in the third quarter, there is more room for growth.
Following the encouraging efficacy data reported by Pfizer ( PFE Quick Quote PFE - Free Report) / BioNTech’s ( BNTX Quick Quote BNTX - Free Report) mRNA-based coronavirus vaccine candidate, BNT162b2 and Moderna’s ( MRNA Quick Quote MRNA - Free Report) mRNA-1273 vaccine, AstraZeneca ( AZN Quick Quote AZN - Free Report) too announced a potential COVID-19 vaccine with average efficacy of 70%.
Moreover, for the third quarter, U.S. real GDP increased at an annual rate of 33.1%, rebounding from a decrease of 31.4% in the second quarter.
This rebound in the economy creates a favorable backdrop for the residential mortgage market that has witnessed one of the most robust recoveries since the peak of the pandemic sell-off in March that continued into April.
In fact, the mortgage backed securities (MBS) market continued to benefit from the ongoing Fed support, low mortgage rates, high origination volumes and favorable funding conditions.
Markedly, the 30-year fixed rate mortgage for the week ending Nov 19 was 2.72%, the 13th record-low this year compared with 2.84% in the prior week according to the
Freddie Mac Primary Mortgage Market Survey. This is likely to boost origination volumes and refinancing activities and is therefore favorable for mREITs with origination business.
Moreover, Black Knight, Inc.
reported that mortgage delinquencies improved for the fifth consecutive month in October, falling to 6.44%. This also marked the lowest level since March. Such improvement in the residential mortgage market is likely to drive the rally in the mREIT space. Top 3 Bets
Here we handpick three mREIT stocks that apart from boasting strong fundamentals have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here.
Notably, each of these stocks has outperformed the S&P 500 Index in the past three months. These companies have been witnessing upward estimate revision for 2020 and 2021, indicating analysts’ bullish expectations.
Annaly Capital Management, Inc. ( NLY Quick Quote NLY - Free Report) : This Zacks #2 Ranked company has four investment groups — Agency, Residential Credit, Commercial Real Estate and Middle Market Lending.The Agency group makes investments in Agency MBS. As of third-quarter end, 80% of its capital was allocated to Agency investments. The stability in the Agency MBS market and low borrowing rates will likely drive the company’s near-term performance.
The consensus estimate for current-year earnings has moved 6% north to $1.06, in the past 30 days. Moreover, earnings estimates for 2021 have improved 5% to $1.02 over the same time period.
AGNC Investment Corp. ( AGNC Quick Quote AGNC - Free Report) : This mREIT primarily focuses on leveraged investments in Agency MBS. That includes residential mortgage pass-through securities and collateralized mortgage obligations.With $66.9 billion of Agency MBS in its $97.6-billion investment portfolio, the company is expected to enjoy attractive risk-adjusted returns within the fixed income markets and benefit from spread tightening.
It sports a Zacks Rank of 1, at present. Moreover, the Zacks Consensus Estimate for 2020 and 2021 earnings has been revised 8.3% and 4.5% upward to $2.47 and $2.33, respectively, over the past month.
Ready Capital Corporation ( RC Quick Quote RC - Free Report) : This multi-strategy real estate finance company originates, acquires, finances and services small to medium balance commercial (SBC) loans, small business administration loans, residential mortgage loans and MBS collateralized primarily by SBC loans, or other real estate-related investments.
It carries a Zacks Rank of 2, at present. The consensus estimate for current-year earnings has moved 14.9% north to $1.62 in the past 30 days. Moreover, estimates for 2021 have improved 10.4% to $1.48 over the same time period.
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