Here's Why You Should Hold AGNC Investment (AGNC) Stock Now
AGNC Investment Corp.’s AGNC active portfolio-management strategy will help it navigate the current monetary policy transition. However, market conditions are likely to remain challenging in the near term, whereas spread widening may affect book value.
AGNC Investment adheres to re-evaluation and adjustment of its portfolio as well as hedges amid a varying interest rate and mortgage market environment. The company is operating in a more defensive position, with significant hedge protection due to market volatility. Further, its focus on prudent asset-selection efforts is likely to offer greater stability of cash flows and bode well for long-term growth.
The long-term investment outlook for the company’s new Agency Mortgage-Backed Securities (MBS)investments is positive due to wider spreads and higher expected demand. Moreover, as Fed gradually slows the pace of rate hikes, interest rate volatility will decrease and create a favorable macroeconomic backdrop for Agency MBS investments. Hence, with $46.7 billion of Agency MBS in its investment portfolio (as of Jun 30, 2023), AGNC Investment is expected to enjoy attractive risk-adjusted returns within the fixed-income markets.
AGNC has solid access to attractive funding across a broad spectrum of counterparties and financing conditions along with cash and unencumbered Agency assets of $4.3 billion as of the second-quarter end. Hence, it has flexibility in the opportunistic enhancement of its portfolio. Further, with significant repurchase agreements outstanding used to fund investment portfolio, the company seems to be less susceptible to undergo a credit crisis in the near term.
However, the operating performances of mREITs depend on conditions prevalent in the broader financial markets and macroeconomic situations. Any volatility in the mortgage market, unfavorable change in the shape of the yield curve, interest-rate volatility and deterioration of generic financial conditions may affect the performance of the company's investments.
AGNC Investment continues to adjust its investment portfolio in sync with the current interest rate and global economic environment. With Fed reducing its Agency RMBS portfolio, persistent spread widening and higher volatility, the company has been trimming its investment portfolio. Moreover, as it prioritizes risk and liquidity management, robust returns are expected to remain elusive, at least in the short term.
AGNC Investment’s hedging strategies are not designed to shield it against fluctuations in tangible net book value, resulting from changes in the spread between the company’s investments and other benchmark rates like swap and treasury rates. This exposes its business to the risk of adverse spread changes.
Currently, AGNC carries a Zacks Rank #3 (Hold). Shares of the company have lost 17.2% over the past year compared with a 20.5% decline recorded by the industry.
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Stocks Worth Considering
A couple of better-ranked stocks are Independent Bank Corporation IBCP and BSP Old Second Bancorp, Inc. OSBC.
Earnings estimates of IBCP have been revised 4.5% upward over the past week. In the past six months, IBCP’s shares have lost 9%. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Earnings estimates for OSBC have been revised marginally upward for 2023 over the past week. Shares of OSBC have lost 6.5% over the past six months. Presently, the company holds a Zacks Rank #2.
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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
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