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Annaly Capital Management, Inc. Message Board

  • officejrb officejrb Dec 2, 1998 5:08 PM Flag

    Patience.

    NYL should earn about $1.15 even with prepayments
    that are bringing down income a little due to premiums
    paid that exceed prepayment assumptions. The worst I
    forsee is $1.10 earnings. Prepayments should start to
    slow down as the yield curve becomes more normal nad
    could be as high as $1.17. At 95% payout the company
    should yield about 13-14%. This kind of return may not
    excite the fund managers, but at the end of 1999 they
    will wish they earned 13-14%. The DOWwould need to
    climb well above 10,000 in 1999 for this same return. I
    think not.

    Because the company does not
    currently have good growth prospects (can really only grow
    thru new equity or subordinated debt and neither is
    available) and the industry is in disfavor, the market will
    probably value stable earnings at a 9 multiple for the
    next year. It will take a few quarters to get even
    this confidence.This would result in a stock worth
    about 10.50. The combination of yield and stock
    appreciation is in excesss of 30% .

    I like buying a
    company in the risk arbitrage business at 75-80% of
    BV-particularly when BV is marked to market and totally liquid
    and consists of 100& AAA Bonds that could be sold in
    two hours. To me it's like buying into a poker game,
    knowing that mgt is a good player using other peoples
    money. Earnings should not be impaced much by a downturn
    in the economy and thus this company may even offer
    a hedge against other holdings of mine that are
    directly impacted by the economy.

    On the other hand
    I must be the only one off center enough to think
    this way because the stock seems to have little
    following.

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    • officejrb, does your analysis take into account
      1) future stock buybacks and 2) continued gains
      recognized? For the 3rd qtr, the GAAP earnings of NLY
      included gains on securities sold that represented
      approximately 25% of total net income. I am not sure they can
      continue to book gains at this level. If you take gains
      out of future earnings then ROE will drop to 8-9%
      level. This is still not a bad return when you can buy
      the stock at 75-80% of book value. But, I think that
      it may help explain the lack of price appreciation.
      The last couple of days show heavy volume in NLY (2X
      to 3X avg volume). I suspect its year-end selling by
      a large money mgr. I plan to buy 1000 more shares
      today and hope to get a dividend check in Jan. of
      $0.27/share.

 
NLY
11.305+0.015(+0.13%)12:00 PMEDT

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