3 Watchlist Stocks

Most investors don't keep tabs on their companies' fundamental values. That's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.

We can help you keep tabs on your companies with MyWatchlist.com, our free, personalized stock-tracking service. Here are three stocks from my own watchlist.

1. CAPS' weekly top stock idea: RAIT Financial Trust (NYSE: RAS  )
Each week, I cull a top stock idea from the pitches made on CAPS, The Motley Fool's 170,000-member free investing community. RAIT Financial Trust, a pick from December, caught my eye, since its shares have fallen recently. RAIT Financial Trust, along with competitors American Capital Agency (Nasdaq: AGNC  ) and Northstar Realty Finance (NYSE: NRF  ) , are REITs focused on the real estate financing market. To see the pitch selected for CAPS' weekly top stock idea, click here. If you want to follow my weekly picks, you can subscribe to the series' RSS feed or follow us on Twitter.

2. Chimera Investment (NYSE: CIM  )
Like its parent Annaly Capital (NYSE: NLY  ) , Chimera Investment invests in mortgage-backed securities. Both firms have been making a killing while the Fed keeps interest rates at all-time lows. Unlike its parent, which invests in only government-insured residential mortgaged-back securities and other guaranteed notes, Chimera invests in higher-risk securities that aren't backed by the government. To temper the extra risk, Chimera uses much less leverage than its parent. 

Leverage levels at both are reasonable; Annaly has a debt-to-equity ratio of 6.8, while Chimera has a debt-to-equity ratio of 1.1. With higher risk comes higher reward, and as such, Chimera currently yields more than its parent: 16.1% versus 14.3%. While I have selected Annaly for my high-yield dividend portfolio, I would like to see Chimera's price come down before investing to compensate for the increased risk. For that reason, I have Chimera on my watchlist. Click below to add it to yours.

3. Fidelity National (NYSE: FNF  )
Fidelity National and First American Financial (NYSE: FAF  ) collectively control 65% of the title insurance market. Title insurance is the insurance you have to get when buying a property to insure you against all sorts of rarely occurring, but very costly, potential issues if something goes wrong in the transfer of the property to the new owner. As you would expect, title insurers' business fluctuates with the housing market.

Fidelity National is the largest title insurer, with a market share of nearly 40%. The industry was hit hard with the housing downturn, but both these firms managed to earn a profit in 2010. As the economy begins to expand and real estate transactions pick up, the entire title insurance industry will do well.

I like Fidelity National more than its competitors as its scale gives it strong operating margins -- 10.8%, compared with First American's 5.9% operating margin. The company's stock has taken a hit over the past six months, dropping roughly 10% after the company cut its target dividend payout policy and announced its CEO was leaving. However, with shares trading at around 8.5 times earnings, Fidelity National looks tempting.

My Foolish bottom line
If you're looking for more information on these companies, add them to your watchlist to keep up with any news in the coming weeks.

Dan Dzombak can be found on his Twitter account: @DanDzombak. He owns shares of Annaly Capital Management.

First American and Fidelity National are Motley Fool Inside Value recommendations. The Fool owns shares of Annaly Capital Management and Fidelity National. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (11)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2011, at 12:03 PM, FoolmeorU wrote:

    I've read with interest that the REIT are rated. NLY, EPS is $1.90, div. is $2.56, P/E = 10, whereas the AGNC, EPS is $7.55, div. is $5.60, P/E = 4. Without the same REIT sector, AGNC is buy far has the lowest P/E. If the rest are tempted, what about AGNC?

    On the other hand, if P/E = 8 is the norm, that also means AGNC would have more room to grow. When EPS = $1.90 and div. = $2.56, that means the company has no contingence and would have to cut the div. at the second of a shortfall. Where EPS = 7.55 and div. = $5.60, that means the company is financially healthy, with contingence = 35% of the div. At hard time, the company would still have the funding and in good time, the company is able to increase the div.

    NLY or AGNC, which one is a better buy?

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