Two Harbors Investment Corp (TWO), Edison International (EIX): Shorts Are Piling Into These Stocks. Should You Be Worried?

Is the sun rising on this REIT?
On Friday, I highlighted mortgage-REIT American Capital Agency Corp. (NASDAQ:AGNC) as a great dividend you could buy right now. The reasoning behind my conviction in American Capital Agency Corp. (NASDAQ:AGNC)’s hefty 15.3% yield was the contention that the Federal Reserve may begin winding down its bonds purchases (which include MBS’s) as early as this summer if the American economy keeps picking up steam. Without the government nabbing MBS’s, better and more profitable options will be available for mREITs like American Capital.

Whereas American Capital deals solely with agency loans — those backed by the full faith of the government — the optimism could extend outward to non-agency MBS purchasers like Two Harbors Investment Corp (NYSE:TWO) as well. Non-agency mREITs offer the prospect of higher net interest margins than agency-only mREITs, but they also come with significantly more risk, as their non-agency losses aren’t backed by the government. This means that highly levered non-agency mREITs run the risk of not being able to get sell their MBS’s if the housing market turns sour.

For Two Harbors Investment Corp (NYSE:TWO), it’s really a bit of a toss-up. The stock has already had an amazing run higher, so short-sellers could be on to something. Then again, Two Harbors Investment Corp (NYSE:TWO)’ nearly 11% yield isn’t likely to fall if the housing market doesn’t deteriorate.

Foolish roundup
This week’s theme is all about affirmation. Spirit’s backing of its full-year guidance makes me feel confident that it’s heading higher, while Edison International (NYSE:EIX)’s waffling on San Onofre and its near-term expenses gives me plenty of reasons to worry about its growth prospects. For Two Harbors Investment Corp (NYSE:TWO), it all depends on whether or not the Fed sticks to its word.

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 Spirit AeroSystems Holdings (NYSE:SPR).

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.