Mortgaged backed securities When banks get mortgages from people they group them together based on the reliability of the buyer. They sell these securities.

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Presentation transcript:

Mortgaged backed securities When banks get mortgages from people they group them together based on the reliability of the buyer. They sell these securities to Real Estate Investment Trusts (REITs) such as Annaly. REITs make their money from the interest of mortgages. This industry has been doing poorly over the past several months because of sub-prime lending, a type of loan that is given to people without adequate qualifications or credit. Their inability to pay the mortgage back is the main cause for the industry’s fall.

What does Annaly do? Annaly is a REIT that buys mortgage-backed securities from banks. Their strategy is to invest in low risk securities. That’s why its been doing well comparative to its competitors and its industry. It also uses a tactic known as the Barbell Strategy. It balances the amount of fixed rate mortgages and floating rate mortgages the company owns. When interest rates are low, the fixed rate securities do well and when interest rates are high, the floating rate securities outperform.

What does Annaly do? Cont. All of the securities that it owns have been guaranteed by agencies of the U.S. government such as Ginnie Mae, Fannie Mae, and Freddie Mac. These agencies guarantee timely payments of the principal and interest. This low risked strategy stabilizes the earnings of the company.

Three Month Chart

One Year Chart

Annaly Vs. Competitors

Past/Projected Earnings

Why We Chose Annaly It only invests in AAA credit owners so the fall of its industry will not affect its performance. It’s one the few safe stocks in its industry so people have to buy this stock in order to make money without tremendous risk. It has beat its projected earnings the last five quarters and is has an expected growth rate of 67.3% in the next year.

It is one of Fortune magazine’s top 10 stocks for 2008 as of December 24 th, 2007 Its Price/Earnings ratio is about 13 so the stock is under priced and should go up in the next several months. Within the last year Insiders bought this stock and not a single person sold it. Dividend is approximately $2 per share and it is given every quarter. Why We Chose Annaly Cont…