Mortgage REITs: Annaly Capital’s Insiders are Buying Again

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Mortgage REITs: Annaly Capital’s Insiders are Buying Again

Back in February, I recommended that readers follow the lead of Annaly Capital Management’s (NLY) insiders and buy shares of the battered mortgage REIT.

Mortgage REITs as an asset class had been slammed in the second half of 2013 as investors dumped virtually all yield-sensitive investments in the “taper tantrum,” but Annaly’s top executives saw value.  Four insiders bought 238,406 shares worth $2.5 million last November alone, and insider buying had been pretty steady throughout the selloff.

The insiders were correct, and my timing was good.  Annaly’s share price rose from $11 per share in mid-February to nearly $12 per share in late August.

But in September, mortgage REITs dropped like a rock—again, on fears of Fed tightening—and Annaly dropped below $11 per share again.  And once again, Annaly’s insiders see value.

In August of 2014, two Annaly insiders purchased a combined 209,621 shares worth about $2.3 million at today’s prices.  And this was before the September swoon.   This means that today, we have the opportunity to buy Annaly at a price significantly below the price paid by Annaly’s insiders.

As I wrote in a recent update, mortgage REITs as an asset class are trading at below their accounting book value and yield about 11%.  And Annaly is cheaper than an already cheap asset class, trading at a 19% discount to book value.

Annaly’s insiders are by no means omniscient, and it is entirely possible that their loyalty to their own company has blinded them to the macro risk presented by a rising Fed funds rate.  But I wouldn’t bet on it.  The bond market massively overestimated the risk of rising rates a year ago, and I see it making the same mistake again today.  Use this temporary panic as an opportunity to follow Annaly’s insiders and accumulate shares of NLY.  Plan to hold for a year for total returns including dividends of 25% or more.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.

This article first appeared on Sizemore Insights as Mortgage REITs: Annaly Capital’s Insiders are Buying Again