At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
What do you do when one of the best analysts in the world suddenly recommends buying shares of a stock that's lately been going nowhere but down? Personally, I listen up. And from what I hear, Blue Horseshoe loves Annaly Capital Management (NYSE: NLY ) .
"Blue Horseshoe" in this instance being the smart stock pickers at Stifel Nicolaus, which, according to our CAPS supercomputer, is one of Wall Street's best analysts. Yesterday, Stifel upgraded Annaly from "hold" to "buy," and predicted anyone who follows its advice could reap nearly 25% profits from the stock over the next 12 months.
How? On the one hand, Stifel thinks the shares -- which sell for $17.50 today -- will fetch $19 apiece within a year. If Stifel's right about that, there's a tidy 8.5% profit to get you started. As for the rest, Annaly today promises to pay its shareholders a forward dividend yield of nearly 15%. Over the course of a year, the two profit streams should combine to net you a 23.5% return.
Sign me up!
Pretty nice, huh? But is Stifel right? Chances are good that it is. Consider: Out of the thousands and thousands of stocks available for purchase to individual investors, Stifel believes some of the best bargains available are in the real estate investment trust (REIT) industry. Stifel spends more time analyzing REITs than just about any other analyst I know, making REITs its No. 1 area of expertise, with more than 156 picks in the sector over the past five years.
Granted, out of these picks, Stifel's only been right about the stocks themselves outperforming the market about 50% of the time. But when you factor dividends into the mix and tally up the size of the outperformance of Stifel's winners as opposed to the tiny underperformance of its losers, the numbers are staggering. Stifel's biggest loser in the industry, Gramercy Capital (NYSE: GKK ) , only underperformed the market by about 50 percentage points. In contrast, its biggest winners, Hatteras Financial (NYSE: HTS ) and ProLogis (NYSE: PLD ) , outperformed by 76 points, and 197 points (!), respectively.
Result: Over the course of five years picking fat winners and slim losers, Stifel has managed to outperform the S&P 500's returns by an astounding 1,480 percentage points, combined. Call me an optimist, call me a Fool, but I wouldn't be at all surprised to see Stifel "do it again" with Annaly.
Annaly, Annaly, oxen-free!
Annaly shares sell for a P/B ratio similar to those at rivals Capstead Mortgage (NYSE: CMO ) , MFA Financial (NYSE: MFA ) , and Anworth Mortgage (NYSE: ANH ) . Yet Annaly's 14.9% annual dividend exceeds the payout at any of these three rival REITs -- and at Gramercy, Hatteras, and ProLogis, for that matter.
So already Annaly looks like a pretty good bargain, and a good bet to outperform its peers. Judged on its own merits, the stock also looks attractive. If Stifel's wrong about Annaly "going up," Annaly's monster 14.9% dividend yield should still more than outperform a stock market that historically rises about 10.5% per year. And if Stifel does turn out to be right about the stock appreciating as well, that would juice the returns that much more.
Foolish takeaway
It's not often you see an industry specialist with a record of success point you to such an obvious bargain and give you the green light to buy. Today, anyone interested in Annaly has been given just such a green light. My advice: Pass go. Collect $200. … Then spend it on Annaly.
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