Buyback Expert Bets on Two Harbors

11/15/2016 8:00 am EST

Focus: REITS

David Fried

Editor, The Buyback Letter

Our latest buyback stock is a real estate investment trust that invests in residential mortgage-backed securities, mortgage loans and servicing rights, commercial real estate and other financial assets, notes David Fried, editor of The Buyback Letter.

We bought Two Harbors Investment Corp. (TWO) in August and sold in September for a quick 9.84 % gain. It’s back at the top of our filters again.

As a REIT, the company would not be subject to federal income tax, if it distributes at least 90% of net taxable income to its stockholders.

Two Harbors is headquartered in New York, and is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P.

The objective is to “selectively acquire and manage an investment portfolio of our target assets, which is constructed to generate attractive returns through market cycles. We focus on security selection and implement a relative value investment approach across various sectors within the mortgage market.”

The company was named as the winner in the “Large Company” category of Minnesota Business magazine’s “2016 100 Best Companies to Work For” awards.

TWO was in the news recently for closing a unit that bundles home loans into bonds to sell to investors. These are high-quality mortgages that are too big to be guaranteed by the government -- known as jumbo loans -- that were packaged into bonds. 

The company has a long-term expected EPS growth rate of 4.8%. Q2 results included a reported book value of $9.83 per common share, representing a 3.7% total return on book value after accounting for a dividend of $0.23 per share.

The company also delivered comprehensive Income of $122.3 million, a return on average equity of 14.3%, and core earnings of $76.2 million, or $0.22 per weighted average common share. TWO has reduced shares outstanding by 5.418% in the past 12 months.

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By David Fried, editor of The Buyback Letter

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