This Just In: Upgrades and Downgradeshttp://www.fool.com/investing/general/2012/11/19/this-just-in-upgrades-and-downgrades-29.aspx Rich Smith
November 19, 2012
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 worst...
On Friday, ace investment banker Wells Fargo (NYSE: WFC ) described the headwinds facing this industry in stark detail, a staccato list of nightmares that's been dragging down mortgage REIT (mREIT) stocks across the board. Wells' list of woes includes:
Should all of this come to pass, it would truly be a perfect storm that would devastate the mREITs. But Wells argues that these fears are overblown, and the sector "oversold." And matching actions to words, last week Wells upgraded a raft of mREIT stocks on the theory that they're now selling at prices "not seen since the height of the financial crisis," and bound to rise.
And so it was that Annaly and Capstead Mortgage (NYSE: CMO ) , Hatteras Financial (NYSE: HTS ) , Invesco Mortgage (NYSE: IVR ) , and MFA Financial (NYSE: MFA ) all received upgrades to "outperform" on Friday. As Wells describes it: "the mREITs trade at approximately 0.88x to Q3 [book value] and have traded at such levels only three times since 2001" -- July 2007, December 2005 before that, and of course, March 2001 -- during the Great Bubble Burst. Assuming a return to more normal valuations, these stocks seem bound to outperform going forward, or at least receive valuations more in line with their book values.
Which of the five have the most to gain from a reversion to the mean? Actually, they all carry similar potential. In order, price-to-book valuations at the stocks run from a low of 0.82 at Capstead, up through 0.84 (Hatteras), 0.86 (MFA and Annaly),