Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of mortgage service providers came under heavy pressure following an earnings miss from Walter Investment Management (NYSE: WAC ) , which tumbled as much as 24%. Peer Nationstar Mortgage Holdings (NYSE: NSM ) couldn't escape the pressure and dipped as much as 10% as well.
So what: For the quarter, Walter Investment reported a 13% increase in year-over-year revenue to $176.4 million and a profit of $0.64. Unfortunately for shareholders, Wall Street had been expecting $0.67 in EPS. However, management didn't seem deterred by its small miss, guiding 2013 EBITDA to $650 million to $725 million, which is well ahead of current estimates. Management cited recent acquisition of $93 billion in unpaid principal balance residential servicing assets from Bank of America (NYSE: BAC ) that are backed by Fannie Mae as all the more reason to be excited about the company's long-term growth.
Now what: I had, admittedly, thought Walter Investment had gotten ahead of itself in terms of valuation prior to this quarterly report, but the downside reaction to a very small miss and what I'd deem solid guidance seems a bit much. The same goes for Nationstar, which is currently down 5% in sympathy with Walter Investment. Both companies will need to continue to deliver for shareholders, but, if Walter Investment's EBITDA guidance is any indication, the mortgage servicing sector is doing just fine.
With so many of the big finance firms getting bad press these days, it may be a greedy when others are fearful moment. Not surprisingly, some of Warren Buffett's biggest investments are in the space. In the Motley Fool's free report, "The Stocks Only the Smartest Investors Are Buying," you can learn about a small, under-the-radar bank that's too tiny for Buffett's billions. Too bad, because it has better operating metrics than his favorites. Just click here to keep reading.