It doesn’t take much for emotion to suddenly swing on Wall Street. Markets can rise one moment, then suddenly fall due to negative growth.
And given her current situation, it won’t take long to come down, says Mike Wilson, chief investment officer and US equity strategist at Morgan Stanley.
“The S&P 500 risk/reward earnings setup ahead of us is the worst I’ve seen today,” Wilson said.
“The equity market is not trading well on the surface,” citing troubled businesses, good news already reflected in high valuations, challenges in the real estate sector, the possibility of a resurgence of regional bank woes, among other bubble problems if anyone runs into a crisis that could lead to a meltdown. The result? The S&P 500 could see a decline of more than 25% from current levels.
So what should an investor do to protect himself from such a situation? Lean into the classic defense game Divided sharesAnd especially high-yielding ones.
We have started this process and we have taken it out of the process TipRanks database Two such names some Wall Street analysts are currently recommending to investors — and one of them yields 13 percent. Let’s take a look at why these can be the right choices for protection during a severe shock to the markets.
Patria Investments (Pax)
Patria is one of the leading investment firms in Latin America, and can boast an international footprint with offices in 10 cities in 4 continents. The company has 30 years of experience and had more than $28 billion in total assets under management as of June 30 this year, a 7 percent increase compared to the same period in 2022.
Patria’s portfolio is not only large but also well diversified. The company has investments in private equity, debt and equity financing, real estate and strategic infrastructure projects in energy, transportation and information. Patria’s overall investment strategy has always focused on generating attractive returns for its investors.
In the company’s last financial release, for 2Q23, Patria showed good headline results, along with a dividend statement that should keep return-minded investors informed. On the top line, Patria’s revenue was strong, reaching $78.6 million. That figure represented a 41 percent year-over-year increase, and beat forecasts by more than $14 million. On the bottom line, EPS of 30 cents per share missed estimates by 1 cent — although it was up 50% from last year’s figure.
Moving on to the dividend statement, we note that the company issued a September 8 payout of 25.1-cents per common share. This fee is fully covered by the company’s earnings and provides a solid annual yield of more than $1. from ~7%
Latin America is sometimes neglected in the world economic market, but it has the potential to become a real source of energy. With a population of 665 million and a number of dynamic capital markets, it’s no wonder the region has produced leading investment firms such as Patria. This is the background to BTG Pactual Analyst Eduardo Rosman’s bullish view.
We consider Patria a premium asset manager in LatAm, reflecting its strong product strength and exceptional financial support (in strong currency with long-term commitment). Moreover, Patria could be one of the key platforms that will strengthen the LatAm asset management market. We believe the valuation is attractive… We think it’s one stock to watch closely in 2H23 as the Brazilian and Chilean capital markets recover and the stock’s liquidity improves. We are buyers at our current level,” Rossman wrote.
With a buy rating, Rossman set a $21.50 price target for the next 12 months, suggesting a 48% gain could be in the cards. (To see Rossman’s track record, Click here)
Overall, this stock has 4 recent ratings from Wall Street analysts, with a 3-to-1 split over states – rating for a strong buy consensus. The current trading price of $14.78 and the average price target of $18.83 combined indicate a 27% upside for the coming year. Adding annual dividends, that’s a potential 34 percent one-year return. (look out Patria stock forecast)
MFA fundsL (M.F.A)
Now, let’s dive into MFA Financial, a real estate investment trust (REIT) focused on the residential real estate sector. The company effectively manages residential real estate assets, including both residential whole loans and residential mortgage-backed securities (RMBS). As of June 30 this year, the company’s portfolio has reached more than $8.85 billion.
MFA reported total assets of $9.73 billion at the end of 2Q23. This represents a gain of approximately $620 million over six months. More than $329 million of the company’s total assets were unrestricted cash or cash on hand, which could be used to fund a generous dividend. REITs are required by government regulators to return capital and profits directly to investors, and they often use dividends to meet this obligation.
The company not only has strong financial assets, but also generates profits. While revenue declined in Q2, falling 15% y/y to $44.5 million, and missing forecasts by more than $9.4 million, the company’s EPS was good. Distributable earnings, a non-GAAP measure of earnings, came in at 40 cents per share, or 6 cents ahead of forecasts. With the company’s cash holdings, this EPS has guaranteed full coverage of the quarterly dividend.
That dividend was last paid on July 31 at 35 cents a share. The common stock’s current annual rate of $1.40 offers a sky-high yield of 13 percent.
This REIT has attracted the attention of Wedbush 5-star analyst Jay McCanless, who sees the company’s ability to expand its portfolio and maintain its dividend as key attractions. McCanless wrote of MFA, “We expect to see modest net interest margin expansion over the next several quarters, driven by higher yields from commercial purpose loans that have increased modest loan portfolio growth.” While funding costs are also expected to increase, at least in the near term, they should be kept in check by the company’s swap portfolio, which delivered a positive carry of $26 million in 2Q23. We also expect a stable and consistent contribution to revenue from Lima One payments and moderate operating expenses over our forecast horizon. At this point, we expect the company’s $0.35 quarterly profit to last through at least the end of 2025.
The analyst rates the position with an Outperform (i.e. Buy) rating and a $12 price target, indicating a 10.5% share appreciation over the next 12 months. (For a look at McCannless’ track record, Click here)
Overall, here are 6 recent analyst reviews, split 3-3 between Buys and Holds to give the stock a Moderate Buy consensus rating. The average price target of $12.35 is slightly more bearish than McInless is allowing, suggesting a ~15% upside from the current $10.76 share price. That increase, and the dividend, together imply a return of ~28% over the coming year. (look out MFA stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.
