Annaly Capital (NYSE: NLY)
Recommendation Action: Long
Current Price: $16.37 Target Price: $22.50
Source: Hedge Fund. New York, NY.
Quick Pitch: Annaly Capital (NYSE: NLY) was founded in 1997 and has performed well through economic and interest rate cycles, unlike newer peers who largely came into existence post the financial crisis. If borrowing rates for agency Mortgage REITs stay low for the next 3 years, it should help the sector maintain spreads. Furthermore, continued low rates should be expected to cause investors to seek out high-yielding income alternatives like REITs and MLPs. In a backdrop of low asset returns and financial repression, it strikes me that mortgage REITs and Annaly, in particular, are well positioned to deliver attractive risk-adjusted returns. My 12 month price target is $22.50 which is 1.2x book with the view that prepayments will actually slow as long term rates actually rise over the next year as economic data improves slightly and there is no major negative (or positive event) in Europe.