Analyst Daniel Altscher of FBR Capital Markets & Co. says Two Harbors Investment Corp (TWO) is an interesting investment, as it is a beta play on credit, a pioneer in the mortgage REIT industry, and has an attractive risk/reward profile.
“Credit is something that I want to own right now. Delinquencies are still falling on the residential side, home prices are still rising…from our perspective I’m getting access to a legacy portfolio of mortgage bonds that I think are trading substantially below where the actual cash flows will reside at and where the actual fair values will reside at. And so from that perspective I feel like a stock that trades at 95% of book value is really attractive,” Altscher said.
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Altscher also likes that Two Harbors Investment is a company that helps create the market. He has seen it branch out to become more of a mortgage finance company that happens to be in a REIT shell.
“You’re seeing this through the purchase of MSRs, you’re seeing this through the creation of an origination network to purchase whole residential mortgage loans and get a securitization platform in place, you’re seeing this through new initiatives to look into how to exploit non-QM lending as that starts to take hold, you’re seeing this through accessing the FHLB to get long duration, cheap financing that can finance the portfolio both on securities and whole loans and for securitizations for a warehouse facility,” Altscher said.
Altscher adds that as a stock that trades at 95% book value, he can’t think of a better name that has a chance of trading above book value.
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