Dessauer Banks on IndyMac
01/03/2003 12:00 am EST
John Dessauer, editor of John Dessauer's Investor's World, is a true international advisor. He follows a strategy of value investing, and as a world traveler, he seeks this value on a global basis, through three decades of firsthand experience and unequalled access to international contacts. For his 2003 favorite, he turns to mortgage lender, IndyMac.
"Our favorite stock for 2003 is IndyMac Bank (NDE NYSE). IndyMac is the 23rd largest mortgage lender in the United States and the largest thrift in the Los Angeles area (20th nationwide). IndyMac is self-funding through deposits and advances from the Federal Home Loan Bank. There is no unsecured debt. Since 1999, IndyMac has repurchased 34% of its outstanding shares. There is $220 million of excess capital that can be used for more stock buybacks or a dividend equal to a 3% yield.
"The company's record is superb. Earnings rose 55% in 2000, 52% in 2001, and will be up 21% this year. Earnings per share will rise about 10% in 2003 even though the mortgage refinancing boom will slow down. Here’s why: the share count will be down roughly 10%; IndyMac’s net interest margin will rise as higher cost Certificates of Deposits are replaced with new lower cost CDs. IndyMac retains the rights to provide servicing on the mortgages it originates.
"Income from the mortgage servicing portfolio will rise sharply thanks to the refinancing boom. Operating expenses will be flat to down thanks to a tight cost control program and lower commissions paid on mortgage originations. IndyMac is a low risk opportunity that can rise 67% in 2003 to $30 a share or better."