We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Stocks to Bet on in the Thriving Mortgage & Related Services Industry
Read MoreHide Full Article
The Zacks Mortgage & Related Services industry has been benefiting since the Federal Reserve cut interest rates to near zero in March 2020. Low interest rates raise the demand for loan originations and refinancing by making cost of borrowing comparatively less expensive.
However, with rising forbearances, mortgage servicers remain under pressure as they are required to advance payments with their limited cash availability. Nonetheless, interest rates are likely to stay low for now and keep demand for mortgages alive, thereby aiding industry players like PennyMac Financial Services, Inc. (PFSI - Free Report) , Walker & Dunlop, Inc. (WD - Free Report) and Ellington Financial LLC (EFC - Free Report) .
Industry Description
The Zacks Mortgage & Related Services industry comprises providers of mortgage-related loans, refinancing and other loan-servicing facilities. Players in the industry are somewhat dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers’ decision to apply for mortgage.
The companies also generate investment income from several financial assets such as residential or commercial mortgage-backed securities and asset-backed securities. Further, the firms make equity investments in mortgage-related entities, among others.
3 Mortgage & Related Services IndustryTrends to Watch Out For
Historically Low Rates & Remote Working to Aid Originations: The housing market began 2021 on a good note as U.S. weekly average 30-year fixed mortgage rate reached another historical low of 2.65%. Also, the low interest rate environment is expected to continue as the Federal Reserve has indicated to keep rates at near zero level for now. Moreover, flexibility to work remotely along with apprehensions of rise in home prices due to slow supply growth might boost home sales as borrowers would want to offset this downside by taking advantage of the record low interest rates. Thus, demand for mortgage loans is likely to remain high.
Refinancing Activities to Slow Down: After an impressive 2020, refinancing activities are expected to slow down a bit this year. Further, Fannie Mae and Freddie Mac imposed a new fee of 0.5%, effective Dec 1, for every refinance loan made by mortgage lenders, which might offset some of the benefits of ultra-low mortgage rates. Also, as the economy gradually recovers from pandemic-induced mayhem, mortgage rates are likely to rise later this year. Thus, the demand for refinancing is likely to gradually diminish.
High Level of Forbearance Burdens Mortgage Servicers: Government recently extended themortgage forbearance option provided under the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act till June 2021-end. The move will allow millions of homeowners with federally-backed mortgages to forgo monthly mortgage payments. However, this might become problematic for mortgage servicers as they are required to make advances of principal and interest payments to investors holding these loans, regardless of coronavirus-related deferments, leading to a liquidity crunch.
Zacks Industry Rank Reflects Bright Prospects
The Zacks Mortgage & Related Services industry is a 12-stock group, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #34, which places it at the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the end of February 2020, the industry’s earnings estimates for the current year have been revised 22.2% upward.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Mortgage & Related Services industry has underperformed the Zacks S&P 500 composite over the past year, though it has outperformed the broader Zacks Finance sector.
The industry has registered growth of 5% during this period compared with the S&P 500’s rally of 18.5%. The broader sector has witnessed growth of 3.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of price-to-book ratio (P/B), which is commonly used for valuing mortgage loan providers, the industry currently trades at 1.68X compared with 6.7X for the S&P 500.
The industry’s highest P/B of 2.32X and median of 1.77X have been recorded over the past five years.
Price-to-Book Ratio (TTM)
As finance stocks typically have a lower P/B ratio, comparing mortgage loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/B ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/B of 3.07X for the same period is above the Zacks Mortgage & Related Services industry’s ratio, as the chart shows below.
Price-to-Book Ratio (TTM)
3 Mortgage & Related Services Stocks Worth Investing
PennyMac Financial Services, Inc.: This Zacks #1 Ranked (Strong Buy) stock is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the origination and servicing of mortgage loans, along with management of investments related to the U.S. mortgage market. The company is based in Moorpark, CA.
The company’s move to develop production technology seems to be working well. Also, focus on long-term growth of its direct lending platforms is likely to enhance prospects.
The stock has seen upward estimate revisions for current-year earnings over the past 30 days by 29.6%. Estimates for 2022 have been revised 17.8% upward in the same time frame. PennyMac shares have gained 13% in the past three months.
Walker & Dunlop, Inc.: The Bethesda, MD-based company provides a range of multifamily and other commercial real estate financing products for owners and developers of real estate.
The company’s expansion strategies, including enhancement of its credit services and credit card product offerings, along with strengthening online lending platform through acquisitions, are likely to drive the top line. Further, its commitment to boosting revenues by diversifying non-mortgage product offerings is commendable.
Shares of this Zacks Rank #1 company have gained 27.4% over the past three months. The Zacks Consensus Estimate for the 2021 and 2022 earnings has been revised 24.1% and 17.1% upward to $8.60 and $8.90, respectively, over the past 30 days.
Price and Consensus: WD
Ellington Financial LLC: The Old Greenwich, CT-based company invests in a diverse array of financial assets. These include residential and commercial mortgage loans & mortgage-backed securities, consumer loans and asset-backed securities supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
The company remains focused on exploring potential strategic investments in loan originators. Also, its ability to keep asset acquisition yields high and credit quality decent, despite the uncertain times, is likely to support its financial performance in the quarters ahead.
The Zacks Consensus Estimate for current-year earnings has been revised slightly upward to $1.66 over the past two months while the same for 2022 has inched up 3.7% to $1.69. Shares of this Zacks Rank #2 (Buy) company have rallied 8.2% over the past three months.
Price and Consensus: EFC
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
Image: Bigstock
3 Stocks to Bet on in the Thriving Mortgage & Related Services Industry
The Zacks Mortgage & Related Services industry has been benefiting since the Federal Reserve cut interest rates to near zero in March 2020. Low interest rates raise the demand for loan originations and refinancing by making cost of borrowing comparatively less expensive.
However, with rising forbearances, mortgage servicers remain under pressure as they are required to advance payments with their limited cash availability. Nonetheless, interest rates are likely to stay low for now and keep demand for mortgages alive, thereby aiding industry players like PennyMac Financial Services, Inc. (PFSI - Free Report) , Walker & Dunlop, Inc. (WD - Free Report) and Ellington Financial LLC (EFC - Free Report) .
Industry Description
The Zacks Mortgage & Related Services industry comprises providers of mortgage-related loans, refinancing and other loan-servicing facilities. Players in the industry are somewhat dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers’ decision to apply for mortgage.
The companies also generate investment income from several financial assets such as residential or commercial mortgage-backed securities and asset-backed securities. Further, the firms make equity investments in mortgage-related entities, among others.
3 Mortgage & Related Services IndustryTrends to Watch Out For
Historically Low Rates & Remote Working to Aid Originations: The housing market began 2021 on a good note as U.S. weekly average 30-year fixed mortgage rate reached another historical low of 2.65%. Also, the low interest rate environment is expected to continue as the Federal Reserve has indicated to keep rates at near zero level for now. Moreover, flexibility to work remotely along with apprehensions of rise in home prices due to slow supply growth might boost home sales as borrowers would want to offset this downside by taking advantage of the record low interest rates. Thus, demand for mortgage loans is likely to remain high.
Refinancing Activities to Slow Down: After an impressive 2020, refinancing activities are expected to slow down a bit this year. Further, Fannie Mae and Freddie Mac imposed a new fee of 0.5%, effective Dec 1, for every refinance loan made by mortgage lenders, which might offset some of the benefits of ultra-low mortgage rates. Also, as the economy gradually recovers from pandemic-induced mayhem, mortgage rates are likely to rise later this year. Thus, the demand for refinancing is likely to gradually diminish.
High Level of Forbearance Burdens Mortgage Servicers: Government recently extended themortgage forbearance option provided under the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act till June 2021-end. The move will allow millions of homeowners with federally-backed mortgages to forgo monthly mortgage payments. However, this might become problematic for mortgage servicers as they are required to make advances of principal and interest payments to investors holding these loans, regardless of coronavirus-related deferments, leading to a liquidity crunch.
Zacks Industry Rank Reflects Bright Prospects
The Zacks Mortgage & Related Services industry is a 12-stock group, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #34, which places it at the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the end of February 2020, the industry’s earnings estimates for the current year have been revised 22.2% upward.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Mortgage & Related Services industry has underperformed the Zacks S&P 500 composite over the past year, though it has outperformed the broader Zacks Finance sector.
The industry has registered growth of 5% during this period compared with the S&P 500’s rally of 18.5%. The broader sector has witnessed growth of 3.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of price-to-book ratio (P/B), which is commonly used for valuing mortgage loan providers, the industry currently trades at 1.68X compared with 6.7X for the S&P 500.
The industry’s highest P/B of 2.32X and median of 1.77X have been recorded over the past five years.
Price-to-Book Ratio (TTM)
As finance stocks typically have a lower P/B ratio, comparing mortgage loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/B ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/B of 3.07X for the same period is above the Zacks Mortgage & Related Services industry’s ratio, as the chart shows below.
Price-to-Book Ratio (TTM)
3 Mortgage & Related Services Stocks Worth Investing
PennyMac Financial Services, Inc.: This Zacks #1 Ranked (Strong Buy) stock is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the origination and servicing of mortgage loans, along with management of investments related to the U.S. mortgage market. The company is based in Moorpark, CA.
The company’s move to develop production technology seems to be working well. Also, focus on long-term growth of its direct lending platforms is likely to enhance prospects.
The stock has seen upward estimate revisions for current-year earnings over the past 30 days by 29.6%. Estimates for 2022 have been revised 17.8% upward in the same time frame. PennyMac shares have gained 13% in the past three months.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PFSI
Walker & Dunlop, Inc.: The Bethesda, MD-based company provides a range of multifamily and other commercial real estate financing products for owners and developers of real estate.
The company’s expansion strategies, including enhancement of its credit services and credit card product offerings, along with strengthening online lending platform through acquisitions, are likely to drive the top line. Further, its commitment to boosting revenues by diversifying non-mortgage product offerings is commendable.
Shares of this Zacks Rank #1 company have gained 27.4% over the past three months. The Zacks Consensus Estimate for the 2021 and 2022 earnings has been revised 24.1% and 17.1% upward to $8.60 and $8.90, respectively, over the past 30 days.
Price and Consensus: WD
Ellington Financial LLC: The Old Greenwich, CT-based company invests in a diverse array of financial assets. These include residential and commercial mortgage loans & mortgage-backed securities, consumer loans and asset-backed securities supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
The company remains focused on exploring potential strategic investments in loan originators. Also, its ability to keep asset acquisition yields high and credit quality decent, despite the uncertain times, is likely to support its financial performance in the quarters ahead.
The Zacks Consensus Estimate for current-year earnings has been revised slightly upward to $1.66 over the past two months while the same for 2022 has inched up 3.7% to $1.69. Shares of this Zacks Rank #2 (Buy) company have rallied 8.2% over the past three months.
Price and Consensus: EFC
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>