Annaly Capital Management (NLY) is a speculative buy for the 'courageous". The stock is yielding 11.85%, so obviously the market has a problem with it. Naturally, that puts my guard up, cautions Jack Adamo, editor of Insiders Plus.
Annaly Capital Management invests primarily in mortgage backed securities. Annaly has always been a tough company for even the best analysts to fathom. All financial companies are difficult to analyze because so much of what they do is obscured or difficult to evaluate.
Annaly is even tougher because it buys and sells so many securities in the course of a year (due to mortgage prepayments) that there's no such thing as "normal" earnings.
The company does report its own version of normal which it calls Core Earnings. Still, the criteria are non-GAAP and very intangible. It is impossible to apply GAAP in any way that allows one to identify a trend.
Still, from 2000 through 2017, Annaly common stock has outperformed the S&P 500 by 69%. That's not chicken feed. What's more, it held its ground much stronger during the 2008 crash. Only between 2013 and 2015 did it substantially underperform the market before catching up in the last two years.
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We've owned stock in some form for most of 15 years. We currently own two different Annaly preferreds. However, the common stock has gotten beaten up lately, due to fears of rising interest rates.
But an examination of the history of the company's performance shows that it has generally done well during periods of rising interest rates. That's probably because refinancing of mortgages goes down as interest rates rise, so Annaly's securities investments maintain their cash flows.
The company has just a microscopic amount of goodwill on it balance sheet, leaving tangible book value of the common stock at about $12.30 a share. At its current price of $10.12, the stock is selling at a 17.5% discount to tangible book value.
To put a little cherry on top of this cake, top execs in company management announced recently that they will be adding to their holdings of the company's stock beyond the requirements that they've already set for themselves in the proxy statement. I've always liked and trusted Annaly's management and now I like them even more. Annaly Capital common stock is a speculative buy up to $10.60.
