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When a Low Profile Pays
11/02/2012 11:15 am EST
This stock hasn't hit the radar yet, and that has proved to be a very good thing for investors so far, and will likely remain so even if it hits the spotlight, writes Mike Cintolo of Cabot Top Ten Trader.
Ocwen Financial (OCN) has been one of the stars of 2012, though few investors know of the company.
The fact that the firm is flying under the radar is a good thing in our book. But the main reasons the stock remains so strong is that the company is at the center of a tectonic shift in a humongous industry.
In the aftermath of the housing debacle, most big banks don't want to be involved in servicing mortgages, which involves collecting payments and late fees, as well as dealing with foreclosures. Because of that, servicing rights for trillions of dollars of mortgages are being sold—and Ocwen is gobbling up many of them.
Moreover, the company recently dove headfirst into the mortgage origination market by acquiring Homeward Residential in a $750 million deal.
With the housing market rebounding, analysts thought it was a shrewd move, and were quick to boost their earnings estimates—they are now looking for $3.80 per share next year, up from a buck last year and $1.50 this year. And we think even those bullish numbers could rise if more deals are made in the months ahead. Earnings are out on November 1.
Technically, Ocwen got going in May, accelerated its uptrend after reporting a great quarter in early August, and mushroomed in recent weeks after the Homeward purchase.
Overall, it's been a monster stock. That said, in this market environment, buying a name that is this extended can bite you.
But further weakness, or even a couple more weeks of trading in this area, could provide an opportunity. For now, we'll set our buy range low, looking to take advantage of any temporary dip.
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