Annaly Capital Management (NLY) Stock | Long Term Analysis | Overvalued or Undervalued |

Transcript (auto-generated)

All right hello and welcome everybody to another stock announcement today we’ll be talking about annaly capital management ticker symbol nly now this company is traded on the new york stock exchange and in this video i want to talk about how this company generates its income i want to determine whether the stock is overvalued or undervalued or fair valued and i also want to give a full long term analysis on the business we will discuss intrinsic value book value day income price turning stock buybacks dividends and all sorts of important tankless when projecting the growth of a company and determining the true value of the stock anyway if you liked this video please do like subscribe it’s about our channel and let’s get this content out to more people so that more people understand how annually works and also all the other stocks that we talk about work as well on our channel anyway thank you so much for watching and without further ado let’s get started so how does nly work well the company makes a majority of its income off of agency mortgage-backed securities what are these you ask well mortgage-backed securities are essentially home or residential mortgages that are in a way packed together into a form of an asset the idea is that a lending bank the bank that lent the money originally will pull together a grouping of the mortgage loans that they have issued then the bank will go to a government-sponsored agency such as fannie mae or freddie mac which will package these loans and secure them into a mortgage-backed security nly then takes that income and practically distributes 90 of its income to its shareholders through dividends which is why companies like noi and ajnc offer such high dividends in the realm of seven to ten percent a year now you might be wondering isn’t this what caused the 2008 financial crisis and yes they had a big role in the collapse back in 2008 these loans weren’t secured by the government at that time so when people couldn’t pay interest on their loans or if they were underwater such that their house was worth less than their mortgage loan then people would default and in 2008 this was a domino effect that led to trillions of dollars being wiped from our financial system the case today is different if a borrower defaults on their loan a government agency will step in and buy the mortgage for the amount of principals still owed this dramatically decreases credit risk for us investors and that’s why recently there has been a renewed interest in agnc and nly has relatively secured demand income investments i think these mortgage-backed securities offer a much safer return than in the past however you may be able to make more money by simply putting that money into an index fund and that’s the debate let’s take a look at some concrete numbers the projected free cash flow intrinsic value for nly is disappointing to say the least at negative 93.27 however this is based off of the how the intrinsic value is calculated we must remember that nly has varying free cash flows due to their business and this doesn’t represent the profitability or asset value of nly as well as we would like currently the book value per share of nly is about 8.36 this is fair in my opinion and it gives the company a price to book of about one these assets are what justify tangible value for the company and with a significant asset value like that this can help to support the trading value of the stock and prevent significant volatility due to lack of dramatic change in the intrinsic value the industry tends to trade near book value rather than earnings growth and so as long as the price of the stock stays close to its book value that can help to justify the current trading value of the stock now if we take a look at the net income we can see that nly offers a questionable quarterly net income that varies rather dramatically and this can turn away investors the net income takes into account a variety of factors besides earnings this can include the depreciation of assets and so nly has struggled to increase book value this can potentially be the reason for the lack of the earnings growth however to be honest it’s hard to say and this isn’t much different from agn season income in terms of volatility the price earnings varies for this business however at the time of this video we could see that the price during is at about three this reaffirms the idea that the fluctuation of earnings has little to do with the trading value with a price earnings of three or four that would have likely triggered some sort of bounce in the share price however that hasn’t happened and we don’t expect it to happen anytime soon now unfortunately nly isn’t willing to do much in terms of stock buybacks as noted by this chart of the shares outstanding in the market as we can see it’s been increasing relatively steadily and that is not ideal for this company however they do pay out a significant dividend we can see that the company currently pays a dividend of about 88 cents annually with a quarterly dividend of 22 cents this demand is substantial giving investors a 10 yield on their investment through dividends the company’s purpose is to distribute as much cash as possible to their shareholders and through dividend reinvesting this position can grow relatively quickly if the share price remains flat due to compound interest so overall what do we think about nly well lly seems to trade for about fair value and offers a substantial dividend however there are risks associated with any company and loy is no exception with the current low interest rate environment and the why has been able to benefit but let’s say the interest rates were to rise which seems very likely at this point then the company’s profitability may decrease so there are some noticeable risks in owning nly and other companies in this field and there is an argument that an index fund or mutual fund with a diversified investment portfolio may offer you a safe and steady return over the long term that may be even better than this however it is impossible to predict the market and you may get close but overall it’s very tricky from a growth investors standpoint the stock certainly doesn’t offer fast growth especially with the current uncertainties with interest rates over the long term the stock seems to be risky for the 10 dividend however it could be worth a small position in a long-term portfolio of course this is your decision and i am not a financial advisor or anything like that and this is not financial advice so please do your own research for investing anyway thank you so much for watching if you like this video and want to see more content like this please do like and subscribe as it does help our channel and please comment down below and tell us what you think about this company and we’ll try to get back to you anyway thanks again for watching and have a great day everybody.