Redwood Trust (RWT) has been around since 1994. The finance company invests in several different segments of the housing market, including residential mortgages they purchase, repackage, and resell, financing single-family rental home investors, and investing in startup companies that are developing real estate-related technology. Buy shares near the recent price, advises Tim Melvin, editor of The 20% Letter.
The heart of Redwood is the investment portfolio, which consists of mortgages they decided to keep rather than sell and residential mortgage backed securities. The strong growth of the single-family home business is creating massive opportunities for Redwood. The non-agency mortgage market is changing, and Redwood stands to be one of the, if not the biggest, beneficiary of the changes.
Redwood Trust (RWT)
The stock has been hit over the past year with fears of rising rates and weak home sales. The shares now trade at a substantial discount to net asset value and yield over 10%.
Recommended Action: Buy RWT.
