BTIG sees valuation upside potential in residential mortgage REITs

BTIG analyst Eric Hagen thinks the non-agency residential mortgage real estate investment trusts could present some of the strongest opportunities in the firm’s coverage for valuation upside connected to the Federal Reserve cutting interest rates. At the same time, the analyst thinks dividends “could be somewhat sensitive if rates stay higher for longer.” Ellington Financial (EFC) and MFA Financial (MFA) carry the best risk-adjusted upside, while the lag seen in stocks like Chimera (CIM), New York Mortgage Trust (NYMT), and Great Ajax (AJX) are mostly indicative of weaker liquidity and less stable leverage, the analyst tells investors in a research note. BTIG sees access to securitization being necessary for valuations to improve for stocks with bridge and transitional loans, including Redwood Trust (RWT), MFA, and New York Mortgage Trust. Amid this backdrop the firm likes Ellington, Redwood Trust and MFA Financial.