Reminiscences of a Stockblogger

Dec 8

New Position in Cherry Hill Mortgage (CHMI)

I was going to put this in my update post but its gotten a little long so I thought I’d pop it out on its own. I’ve talked a lot about New Residential and how much I like mortgage servicing rights as a play on a stronger economy and on rising rates. Well a few weeks ago a fellow who follows the blog wrote me about Cherry Hill Mortgage, a company that, like New Residential, is a REIT that holds mortgage servicing rights. It took me a few weeks to find the time to look at the company and another week afterthat for it to really sink in just how cheap it was comparatively. But once it did I felt compelled to take a position.

It was a bit of unfortunate timing; I had to sell about 25% of my (albeit unreasonably large) position in New Residential to fund the purchase. I wasn’t comfortable going on margin to fund the purchase. So I took that New Residential position down from 20% to 15%. Of course the day after I sold New Res at $6 the stock popped to $6.30. Maybe my sacrifice to the gods of trading was appreciated.

Nevertheless, in the long run I hope to be well compensated for my position in Cherry Hill. Cherry Hill is being spun out of the mortgage originator Freedom Mortgage. Soon after the IPO, the company purchased two pools of mortgage servicing rights from Freedom Mortgage. I ran some quick numbers and it looks like the company paid a reasonable price for these assets. In the table below the assets have been valued at cost: Read more

Dec 7

2 Comments

A Bad Day for Gastar

I ended the week on a sour note for a couple reasons, with one of those being that Gastar got shellacked, presumably on a report put out by a firm named Noble Financial. Noble downgraded the stock from Buy to Hold apparently because of concerns about valuation. I haven’t heard of Noble Financial before but apparently they have some clout if they can send a stock down nearly 10% on their musings. If anyone can get their hands on this report I would love a copy.

With the stock in the dumps I took yet another look at Gastar to make sure I hadn’t forgotten anything. The company has had a lot of transactions since the end of Q3, so below is my reconciliation of the current enterprise value and the company’s valuation on a few common metrics. This is a bit back of the envelope so the numbers might not be dead-on.

Dec 1

7 Comments

Timmins Gold: Anatomy of a Gold Stock Valuation

I’ve talked before about my “rule” to average down when a stock gets underwater by 20%. This 20% threshold is not so much a firm line in the sand as it is an alarm bell to remind me to review my position and clarify exactly what it is I am doing. While in most cases at the end of it all I do decide to reduce my position or exit it entirely, there are also cases where my review leads me to become more confident in my position, and where I do not reduce but instead even add to it.

The 20% threshold was recently broken with Timmins Gold. The stock dropped past $1.10 (it has since recovered to $1.20 and, to give away the ending, I did buy more at $1.10 so I am now down about 10%). I bought both Timmins and Argonaut Gold back in October (I wrote about the positions here) as a way to trade my expectation of higher gold prices in the near term. Obviously that thesis did not play out the way I had hoped, at least not yet.

As I wrote at the time, my research into both names was not exhaustive and I ended up taking the analysis of a few brokerage shops with more faith than I usually might. Well that was my first mistake. It turned out that the original brokerage analysis was quite flawed and two of the firms have since downgraded their estimates and the stock significantly, after the release of an updated mine plan for the San Francisco mine. In the case of BMO, the downgrade was from $2.75 to $1.50! Read more

Nov 23

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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