In addition to his noted expertise in the technology sector, Todd Shaver is also well-versed in income investing, as seen in his latest review of mortgage-related investment ideas in his latest Bull Market Report.
New York-based mortgage REIT New Residential Investment (NRZ) recently released its fourth quarter results, reporting $1.1 billion in revenues, up 92%. Year-over-year, compared to $570 million a year ago. The trust posted a profit of $190 million, or $0.40 per share, compared to $140 million, or $0.32 per share during the same period last year.
The trust ended a tumultuous year on a high note, beating estimates on both top and bottom lines, driven by robust growth in its servicing segment at $128 million, up from a mere $15 million in 3Q21, and 170% YoY, compared to $48 million a year ago. NRZ’s servicing portfolio stands at $483 billion in unpaid principal balances, up from $300 billion a year-ago.
Over the past few quarters, the company has done well to make the most of the low rate environment, and is currently well-positioned to deal with the incoming tapering and rate hikes. With $1.6 billion in cash and strong free cash flows, it can retain consistent monthly dividends. We expect book to rise to $12 this year, and we would expect the stock to trade at book or higher this year as well.
Maryland-based AGNC Investment (AGNC) predominantly invests in residential mortgage backed securities, and it recently released its fourth quarter earnings.
The company ended the quarter with a portfolio worth $82 billion, with $53 billion in agency mortgage backed securities, $27 billion in TBA (to-be-announced) mortgage positions, and another $2.3 billion in credit risk transfer and non-agency securities.
AGNC also maintains a hedge portfolio worth $75 billion, covering 101% of its funding liabilities. The firm acknowledges the need for a more defensive position in upcoming quarters, characterized by lower leverage and a continued significant hedge position.
The company is currently facing strong negative sentiment, with the Fed’s accelerated pace to asset tapering, an abrupt pivot from near zero short term rates. In the face of this challenging situation, AGNC maintains leverage at 7.5X, with a duration gap of just half a year, giving it plenty of room to maneuver and take advantage of attractive opportunities as they arise.
The company remains well positioned to face the volatility storm, with leverage levels below normal operating levels, and unencumbered MBS plus cash worth $5 billion at the end of the quarter. AGNC remains capable of ensuring consistent dividends even in the face of tough situations, which is what makes it a robust investment. We maintain our Price Target at $19. Book value was $14.91 as of January 31, so the stock is trading at a nice discount here.
