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Thoughts about my investment in New Residential’s and a look at their MSR Pools

New Residential has performed poorly over the last few weeks. Pretty much since the release of their 3rd quarter results, the stock has tumbled.  As I mentioned in my previous post, I think that this move in unwarranted, and I have added to my position significantly at and below $6.

I suspect that the market is lumping in New Residential with all the other mREITs.  They are being compared on standard book value metrics and New Residential trades at a significant premium to its book value (20%) while most other REITs trade at a discount to it.

I wouldn’t be surprised if there are algorithms picking up on the book value discrepancy and automatically shorting the higher price to book companies against longs on the lower ones.  It would seem like a natural trade – short what is expensive, go long what is cheap, and look for opportunities where the dividend of the long exceeds that of the short. Read more

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Week 123: Lot’s of Volatility

Portfolio Performance

week-123-yoyperformance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

week-123-Performance

Recent Developments

The third quarter earnings season is shaping up a lot like the second. Lots of volatility, lots of disappointment, and dramatic falls followed by recoveries.

I think its a symptom of our malaise. Things just aren’t that good. Yet stocks are juiced by all the money sloshing around. So you get this dynamic during earnings where numbers come out and aren’t that good, which leads to a steep sell-off in the stock because the current price can’t be justified based on the earnings and outlook.  But then the liquidity effect kicks in, arresting the decline, changing the momentum on its head, and sending the stock back up. Read more

The other VoIP Play I added: magicJack (CALL)

While I was investigating Vonage I was introduced to their competitor magicJack by an acquaintance on twitter. Interestingly, in the process of talking me into magicJack he talked himself out of his own position.  Let this serve as foreshadowing that this is not an investment without its warts.

The Positives

magicJack, like Vonage, provides voice over IP for telephone services for consumers.  magicJack sells a little dongle like device that plugs into the USB port of your computer. You plug in the device, plug in your phone to the other end, and are off to the races. The company is best known for the incessent commercials they have pummeled at people for years. They also have a mobile app available on Android and the iPhone that allows you to make free long-distance and international calls as long as you are connected to Wifi.

magicJack has an enterprise value of about $250 million, comprised entirely of its market capitalization less $45 million of cash.  In the first 6 months of the year the company generated a little over $21 million of cash, which puts the stock at an attractive  6x Enterprise Value to Free Cash Flow.  If you step back to prior years, free cash flow generation as per the balance sheet was even stronger.  The company has also been able to grow its customer base over the last few years, though this growth has tapered off some in the first half of 2013.  A new device was launched in June that should provide a boost to growth, with the extent of that boost likely determining the stocks price in the short run. Read more