The market is getting more expensive. There’s no way around it. Investors should be cautious, but most are apathetic.
There are still a few mortgage REITs trading at favorable discounts with some upside built in. There aren't many, so buying blindly is an exceptionally poor plan. This stock's recent activity may have scared off a few investors, but that dip created opportunity. A 7.7% dividend yield with room to rally. Shares are still within our target range and we recently increased our allocation.
New Residential (NRZ) stands apart from many mortgage REITs for having a more attractive valuation. The discount to book value isn’t absurdly large, but book value for NRZ doesn’t capture the full value of the REIT. NRZ is also involved in mortgage origination and servicing. While book value is the central part of analysis, we still need to consider that NRZ’s valuation should also include a premium to reflect the value of that business. Management has talked about spinning off that business since the market isn’t recognizing the value while it is held within NRZ.
Source: Seeking Alpha
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