American Capital Agency Corp. (AGNC), ARMOUR Residential REIT, Inc. (ARR), Annaly Capital Management, Inc. (NLY): Two mREITs To Buy, One To Avoid

American Capital Agency Corp. (NASDAQ:AGNC)

American Capital Agency Corp. (NASDAQ:AGNC) has seen around 10% depreciation in its share price since the beginning of the second quarter. However, since the beginning of the year, shares increased 2% in value. The company is one of the most favored among analysts and investors due to its superior security selection ability. However, the company’s first quarter performance remained disappointing as the market started to price in a Fed exit from the MBS market. Since American Capital Agency Corp. (NASDAQ:AGNC) has a high allocation towards MBS with prepayment protected mortgages, they underperformed generic collateral and pushed the book value down.

However, much of the first quarter decline in book value has been reversed so far in the second quarter. I believe the post earnings sell-off and the recent dips present an excellent entry point. I am expecting a further rally in specified pools that pushes the book value about 10% higher to around $36.

ARMOUR Residential REIT, Inc. (NYSE:ARR)

ARMOUR Residential REIT, Inc. (NYSE:ARR) is another pure-play mortgage REIT. Its stock price has seen over 7.5% depreciation since the beginning of the year, while it fell 8.4% during the second quarter so far. The company’s first quarter results remained behind expectations. The relatively poor performance was a result of lower asset yields and higher cost of funds.

The company offers a dividend yield of just over 14%. However, I don’t see any positive drivers for ARMOUR Residential REIT, Inc. (NYSE:ARR) coming into play. Therefore, if you are considering ownership in ARMOUR, keep a close eye on the Fed’s stimulus programs.

Foolish Takeaways

Mortgage REITs are involved in a complex business model with high risks. However, they hold a special place in the hearts of investor, particularly the ones who want to expand their regular income. Therefore, keep a close eye on the developments at the Fed and the pace of the ongoing stimulus programs. In the prevailing environment, I see positive drivers for both American Capital Agency Corp. (NASDAQ:AGNC) and Annaly Capital Management.

The article Two mREITs To Buy, One To Avoid originally appeared on Fool.com and is written by Adnan Khan.

Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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