After a recent story, Chasing Value: Insider buying at IndyMac Bancorp, a reader, Alex, asked, "What's your take on American Home Mortgage Inv (NYSE: AHM). The fundamentals seems to be amazing like IMB's?"
It seems to me I had looked at this stock before, and since I neither wrote about it nor put it on my watch list, there must have been something about it that did not thrill me. After reviewing the matter I can see what it was. I was looking at it when it was at a high, and being a value investor passed on it. Glad I did because, as Alex mentioned, like IndyMac it came down hard from almost $40 to close Monday at $21.
Now it is a value play so I am interested. The short answer is, yes I like this pick. Is there risk, yes -- is it going out of business? I do not think so. From a recent story, JMP Starts AHM at 'Market Perform', which does not speak glowingly about AHM, one might conclude this stock is a loser. And if you bought it recently, this would be correct. But I think that stocks like this are worth a look as long as they keep their doors open for business.
The most recent Standard & Poors report from May 2, 2007 rates AHM four stars with a buy rating. Quoting from the report, "While we see AHM's exposure to the ALT-A market affecting near-term earnings, we believe it remains well capitalized and positioned for long term growth." They go on further to state that "...the price is warranted by what we see as it's strong balance sheet." I must point out that this was written about the same time as AHM Shares Fall on Stock Sale when AHM sold common shares to increase it's liquidity and numerous analysts expressed concern about it's financial strength. I am not sure this is accounted for in the S&P report.
Looking at the fundamentals on AOL Money & Finance you can see AHM looks dirt cheap. the P/E (TTM) is 5.03, the P/S is 0.52, the P/B is 1.03, and the Price-to-Cash Flow is the lowest I have seen in recent memory, 0.69. All these figures make it look too good to be true. The bad number is the Long Term Debt-to-Equity (MRQ) of 14.7, high indeed, until you get some perspective and see that Goldman Sachs (NYSE: GS) is at 11.3 and Bear Stearns (NYSE: BSC) is at 13.0 so comparisons might set this issue to rest, this is a reflection of being in the investment business where leverage is the name of the game.
I do not know if AHM can maintain the super high dividend yield, but it currently stands at 20.85%, so I will be following this one from the sidelines for awhile. The biggest reason for me not to buy it is because I bought IndyMac last week and a few other financials before that and I am overweight in the sector. If you are in a different situation there might be something here for you.
Those of you who are new to Bloggingstocks.com can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.
Disclosure: I own shares of IMB.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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Reader Comments (Page 1 of 1)
8-01-2007 @ 8:25PM
Ted said...
Shares plunged to one dollar and change yesterday. Great call (NOT!).