Benefits of PennyMac

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Investor optimism doesn’t just boost stock prices. I see inflation in everything from food prices and school fees to wood and copper prices, warns Frank curzio, editor-in-chief of Curiosity Research Notice.

Housing is another booming market. I have followed this industry for decades, but I have never given the demand as high as it is now. And if you consider the economic growth to come, this real estate boom is likely to last longer than expected.

One company that will benefit is PennyMac Financial Services (IFHP) – one of the largest mortgage lenders in the United States It is the third largest in the country in terms of loan production and the 7th in terms of loan service.

Some people don’t think financial stocks are worth it. But I see several catalysts that could blow up PennyMac over the next couple of years.

Home sales increased 5.6% in 2020. This is the strongest growth in 13 years. And at the end of February, data shows that there are only one million homes for sale in the United States. lowest offer ever recorded.

Not surprisingly, PennyMac’s business is booming. Its latest results (for the fourth quarter) showed record levels of direct loans, loan acquisitions and origins. Its net profit for 2020 rose to $ 1.6 billion. That’s an incredible 319% increase from 2019.

Meanwhile, PennyMac shares are down more than 10% since the start of 2021. Wall Street analysts are worried about rising interest rates. They think higher rates will lead to fewer loans.

I think these concerns are totally exaggerated. Most of these guys have been forecasting a decline for two or more years. But statistics show that the housing market remains in a steady uptrend.

It is true that interest rates have jumped. They are currently around 3.2%, but it’s still extremely low by historical standards. Before COVID came along, 30-year average rates were above 4% for most of the previous five years. They almost reached 5% at the end of 2018.

Looking at consensus estimates, analysts expect PennyMac earnings to fall more than 16% this year. And they forecast another 33% drop in 2022. I think those estimates are way too pessimistic. In other words, there is plenty of room for PennyMac to exceed expectations over the next couple of years.

The current pessimism means that we can buy stocks at a very low price. PennyMac is currently trading below 1.4 times book value and around 3 times forward earnings. This is an absolute theft given the uptrend in housing.

I know some people don’t like financial stocks – but PennyMac could double our money over the next 18-24 months. And based on the current rating, I don’t see much downside. Buy PennyMac Financial Services up to $ 64. Use a hard stop at 25% of your cost base.

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