One of My Favorite Stocks for 2020

PennyMac Financial Services (NYSE:PFSI) is certainly one of my favorite picks for the coming year.

Why? Because it is perfectly positioned to take advantage of one of the biggest trends in the U.S. economy: housing.

PFSI was formed in 2008, and as of Sept. 30, it is the fourth largest originator and sixth largest loan servicer in the U.S., according to industry journal Inside Mortgage Finance. That’s quite a growth track.

And the thing is, this is just setting the stage for the next big move.

PennyMac Financial on the Move

Next year is a presidential election, but it’s more than that. It’s an election for all the seats in the House of Representatives and many of those in the Senate, gubernatorial offices and state legislatures.

That means politicians are very keen to keep their constituents satisfied.

There’s no doubt that the president is the cheerleader-in-chief of this economy, and few politicians will stand in the way of spending bills that will help keep voters happy.

The stock market is at record highs, consumer confidence is strong and unemployment is low. It even looks like the trade war with China is coming to a near conclusion.

What’s more, the Federal Reserve has spent the whole year reverting to a very accommodative monetary policy. Low interest rates are here to stay and banks are lending.

This all bodes well for both the housing industry and home buyers. Even renters that are looking to upgrade will benefit from lower construction costs, since more availability means more price competition.

Also, PFSI has a sister company that’s a real estate investment trust (REIT) called PennyMac Mortgage Investment Trust (NYSE:PMT) that packages and manages various loans relative to their quality. This creates a real symbiosis between the two firms that helps PFSI develop its portfolio.

Another strength that PFSI has is that it not only benefits from new home sales, which are on the rise, but also existing home sales, which are also gaining momentum again.

The Bottom Line on PFSI Stock

The stock is certainly in growth mode, as I wrote to my Breakthrough Stocks subscribers last month:

“Overall, it’s a fantastic environment for mortgage lenders like PennyMac Financial Services — and I suspect that it will add nicely to the company’s top and bottom lines in the upcoming quarters. And the analyst community agrees.

For the fourth quarter, analysts have upped earnings forecasts by a whopping 53.5% in the past three months. The current consensus estimate calls for 141.3% annual earnings growth and 73.1% annual sales growth.”

PFSI stock is up 51% in the past year, which is pretty significant for a mortgage lending company. Yet its trailing price-to-earnings ratio is still below 15. That shows there’s plenty of value — and growth — left for this stock.

— Louis Navellier

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Source: Investor Place