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Here's Why Annaly Capital Management and American Capital Agency Are Trading for a Discount to Book Value

If you were to listen to most stock analysts, you'd be excused for concluding that Annaly Capital Management (NYSE: NLY  ) and American Capital Agency (NASDAQ: AGNC  ) are some of the best bargains in the market today. The problem with this perspective, however, is that it's wrong.

The bullish storyline on these stocks is simple: Because both are currently trading for a discount to book value, they must therefore be a bargain -- for the record, Annaly trades for a 7% discount to book value while American Capital Agency's current valuation is 5% less.

But what this storyline seems to miss is that current stock prices don't reflect the present set of facts. Instead, stock prices reflect future expectations. And in this case, the expectation is that these companies' book values are likely to decline going forward.

Is this a realistic expectation? Check out the video below to see why Motley Fool senior banking specialist John Maxfield thinks it is.

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Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On June 23, 2014, at 10:11 AM, Hibiscusanole wrote:

    Fool recommended it. The Scottrade lady acts like a happy poodle every time I mention it.

  • Report this Comment On June 23, 2014, at 10:22 AM, plange01 wrote:

    nly is extremely cheap and if you OWN on 7/1 and hold it until at least 7/2 you collect its massive dividend!

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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Related Tickers

9/1/2015 3:59 PM
AGNC $19.08 Down -0.05 -0.26%
American Capital A… CAPS Rating: ****
NLY $10.07 Up +0.01 +0.10%
Annaly Capital Man… CAPS Rating: ****