Sharing Your Enthusiasm
Before I move on from the subject of insider buying, I decided to run one last screen for insider activity. One of my favorites searches for what I call "perfect stocks," which, in my world, trade below tangible book value, are profitable and pay a dividend. This has been a fantastic screen over the years, producing wildly profitable stocks. The final criterion is usually a high level of insider ownership, but I decided to replace that with insider buying in the past couple of months and see what we found.
The first observation is that there is a serious struggle between Wall Street and insiders over the fate of mortgage real estate investment trusts. The conventional wisdom on mortgage REITS is that their run is over and the sector is too risky. The bear argument is that low mortgage rates are compressing spreads and making it very difficult for the mortgage REITS to maintain their dividends. The housing market is stabilizing somewhat and we are seeing refinance activity that pays off higher-yielding bonds earlier than expected. Meanwhile, home sales are still sluggish so not much new paper is being purchased. As a final bear blow, the Federal Reserve is now a major competitor for what paper is issued, as they are buying $40 billion a month of mortgage paper....520 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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