Southwest Airlines Co. (LUV), Walter Energy, Inc. (WLT), Annaly Capital Management, Inc. (NLY): Shorts Are Piling Into These Stocks. Should You Be Worried?

Walter Energy, Inc. (NYSE:WLT) might look like a disaster now, but it has the economic catalysts, more than ample capital, and the leadership to make it through this downswing.

Hitting the sweet spot
All this talk that the Federal Reserve will scale back — and potentially even end — its bond-buying program, which consists of U.S. Treasury notes and mortgage-backed securities, has investors worried, unless you’re an investor in mortgage REITs such as Annaly Capital Management and American Capital Agency Corp. (NASDAQ:AGNC).

The fear investors have is that a reduction in the Fed’s bond-buying could send lending rates higher, which would reduce lending and hurt businesses and the economy. For Annaly Capital Management, Inc. (NYSE:NLY) and American Capital Agency Corp. (NASDAQ:AGNC), it would mean access to more MBSes. A bigger selection of MBSes to choose from is only bound to increase both mREITs’ profitability, since they use heavy leverage to turn big profits on what’s normally a razor-thin net interest margin.

Annaly Capital Management, Inc. (NYSE:NLY) and American Capital Agency Corp. (NASDAQ:AGNC) both purchase only agency-backed loans (those covered by Freddie Mac and Fannie Mae) and are thus protected against default by the U.S. government. This allows both companies to use significant leverage with few concerns to their balance sheet. Furthermore, with the Fed being upfront about its intent to keep target lending rates at record lows through 2015, it gives these two mREITs incredible visibility, which they can use to their advantage.

These companies look poised to hit the sweet spot of another big growth period, and I would be shocked if their yields didn’t stay healthfully in the double-digits.

Foolish roundup
Sometimes it just doesn’t pay to be a pessimist, and this week is a good example. While all three companies clearly have challenges that lie ahead, there are more than enough catalysts present that would suggest all three could head higher.

What’s your take on these three stocks? Do short-sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.

The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com and is written by Sean Williams.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends Southwest Airlines.

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