Seek nuggets in rubble of subprime collapse
.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:
There have to be some good buys among the real estate investment trusts, mortgage companies and business development companies – especially those that have fallen almost 50 percent in value due to the subprime loan crisis. Will you recommend about six of these companies that have current dividends between 10 percent and 25 percent? I have about $65,000 of risk capital, and I would like to get an average 15 percent dividend return on this money. I’ve looked at several companies, but I don’t know enough to choose the right ones.
D.P.: Vancouver, Wash.
Dear D.P.:
There have been a lot of low-flying, dark clouds hovering over our financial markets since February. Many investors are feeling like Joe Btfsplk, the born loser from the “Li’l Abner” comic strip, because myriad high-income mortgage REITs are melting portfolio values. But within every dark cloud is a silver lining. If you mine it properly, those veins of silver could return some sparkle to a damaged portfolio.
Readers may recall my column of four-plus years ago when I listed 18 high-tech, low-priced stocks I believed would double, triple or quadruple in the following two to four years. And many did, as that silver lining paid off handsomely for some readers.
Though this credit/subprime mess scorched the bad guys to a crisp, it took no prisoners, and the good guys got scorched, too. Here are a dozen issues that, according to some knowledgeable investors, did not deserve the scorching they got.
If you are comfortable putting high-risk capital to work, equal dollar investments in each of these issues could be rewarding a year or so from now. Some of these issues will reduce their dividends, some might even eliminate them, some will maintain their dividends or even increase them and some might declare Chapter 11 bankruptcy. But I will give you a guaranteed maybe that the 13-issue portfolio below may prove to be a classy speculation.
Deerfield Triarc Capital Corp. (DFR-$8.73) yields 19 percent. DFR traded as high as $18 this year and has a “moderately low” risk ranking.
Hanover Capital Mortgage Holdings Inc. (HCM-$1.99) yields 30 percent. HCM recently agreed to an $81 million repurchase transaction with Ramius Capital.
Alesco Financial Inc. (AFN-$5.47) yields 23 percent. The company expects to earn $1.28 per share this year and $1.40 in 2008.
Vestin Mortgage Realty Inc. (VRTA-$5.30) yields 11 percent. The stock trades nearly 4 points below its $9 book value.
Municipal Mortgage & Equity LLC (MMA-$23.90) yields 9 percent. It’s moderately low-risk and just raised its dividend.
Centerline Holding Co. (CHC-$15.55) yields 11 percent. The company has a sturdy commercial real estate mortgage portfolio.
IndyMac Bancorp Inc. (IMB-$24.34) yields 8 percent. Roth Capital and Lehman rate its stock as a “hold.”
NorthStar Realty Finance Corp. (NRF-$10.65) yields 14 percent. Citigroup gives it a five-star ranking.”
RAIT Financial Trust (RAS-$9.08) yields 37 percent. The Cohen family purchased 540,000 shares in July and August.
Anthracite Capital Inc. (AHR-$9.21) yields 13 percent. Jeffries & Co ranks the stock as a “buy.”
CapitalSource Inc. (CSE-$18.08) yields 13 percent. Morningstar recommends it.
MCGC Capital Corp. (MCGC-$14.70) yields 12 percent. Piper Jaffray gives this business development company a five-star ranking.
Ares Capital Corp. (ARCC-$16.41) yields 10 percent. Near-term earnings for this business development company look bright.
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