This Stock Has Massive Potential

Every year, has its top editors each pick a stock they predict will be the best stock of the year. And then it tracks them.

Given the fact that no one knew that the novel coronavirus was going to hit, or that the global economy would be hit by massive lockdowns, it has already been a pretty unusual year.

But it also is revealing.

Only three competitors have stocks that are in positive territory at this point. And the current winner is Wayfair (NYSE:W). Remember, that stock got a serious boost from the lockdowns.

The other stock is Apple (NASDAQ:AAPL), a solid growth stock that big and small investors flock to in times of trouble.

My stock, PennyMac Financial Services (NYSE:PFSI) has logged a 25% gain year to date. And unlike Wayfair and Apple, it has been growing briskly — under many people’s radars — for a while now. It’s up 90% in the past 12 months.

All About PennyMac Financial Services

PFSI has a simple business. It generates and services residential mortgages in the United States.

It’s the No. 3 lender in the U.S., with 1.8 million customers and $384 billion in loans serviced. And yet most investors aren’t familiar with the name. That has been great for us, since Wall Street is very familiar with the company and knows the opportunity right now.

Given the fact that interest rates are very low — or nearly non-existent — mortgage rates are hovering around 30-year lows. That’s great for prospective homeowners and homeowners looking to refinance.

But banks are concerned about default rates, as the economy is still trying to escape the grips of the coronavirus. That gives banks more leeway on rates for customers that don’t have excellent credit.

Also, there are many private equity and asset management firms that focus on alternative investing — assets that aren’t related to stocks, like real estate.

This is an ideal market for them to buy housing in strategic locations — beachfront properties, desirable suburbs around major metropolitan areas, fast-growing smaller cities — and add them to their portfolios to either resell later or use as rentals.

The simple fact is, this is a buyers market. Rates are low and prices are stagnant.

And the great news for PFSI is that this isn’t just a pandemic-related opportunity. There’s little chance rates are going up anytime soon. Banks are focused like a laser beam on generating income, and one of the few ways they do that is from making loans.

Another strength of PFSI is it’s the No. 1 originator of government-backed loans, which means its portfolio is well-insulated from default risks.

Best Stocks for 2020: Buy PFSI Stock on Dips

But I’ve saved the best for last. PFSI has a sister company, PennyMac Mortgage Investment Trust (NYSE:PMT). Its set up a real estate investment trusts (REIT) and it manages a portfolio of — wait for it — residential mortgages.

That means, PFSI has a built-in buyer for any mortgages it wants to sell. But both businesses are fire-walled from one another for safety.

This is a unique and very helpful relationship regardless of market conditions, but especially in volatile markets like the one we’re in now.

PFSI is still a great buy here, especially on dips.

— Louis Navellier

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Source: Investor Place