Any stock that provides home loans is probably trading near its 52 week low. I have been bearish on two subprime lenders, New Century & Novastar. The question is whether mortgage REITS are currently a value trap? This reminds me of the summer of 2005 when the homebuilders were all trading at forward P/E ratios under 6. July of 2005 was the top in the homebuilder stocks. The difference is now the mortgage REITS are trading at forward P/E ratios under 5 but are at 52 week lows.
One particular REIT I have been looking into is American Home Mortgage (AHM
). I believe the 17% dividend is safe. I am even considering purchasing some shares for my own account. The fact of the matter is that AHM has very little exposure to subprime mortgages. AHM opened its portfolio
for investors to look over on March 6, 2007. A loan with a FICO score under 620 is considered a subprime loan.Percent of Mortgage Portfolio
FICO Score Under 620: 1.7%
Subprime Off Balance Sheet Securitized Loans: 1.1%
Subprime Loans Held for Sale: 7.3%
Subprime Loans Held for Investment: 1.3%
Clearly AHM has very little exposure to the subprime market. I would look to get long this stock on any weakness.