On Friday, shares of Newcastle Investment significantly outperformed the market with gains of more than 4%. The gains were caused by a reiterated “Buy” rating from UBS, with a $14 price target. Currently, a $14 target would insinuate 40% upside. However, the firm explained its call by describing its 14% one-month loss as unwarranted, saying the loss is due to the concerns of a delayed New Residential spinoff. UBS believes that this delay is due to additional filing requirements associated with the acquisition of HSBC servicing assets.
So basically, UBS claimed that presumed fears of the New Residential spinoff are meaningless. While this may be true, UBS is predicting 40% upside on a stock that has lost 14% from this concern. UBS has already said that it believes New Residential is worth $8 per share and that NCT is a deep value stock.
When you look at the fundamentals, you almost have to agree. The stock is a bit pricey, and it has very little room for margin growth. However, 20% fundamental growth this year is very attractive in this economy. The key is if UBS is right about New Residential. But either way, investors must understand that it is a speculative call, one that is risky