NFI

[Michael]

I have bought NFI today at 30.87. I am sure that will chock most TA's. Melf Elf is talking about chart break down in the KOMG thread and I think NFI's chart probably is the definition of that  

I am however very happy with my purchase and with the solid dividend i will have patience until TA's are finished playing with the stock and the fundamentalists can take over  

[Michael]

Hmmm..... I should probably have a more aggressive headline for this pick! Something like: A hell of a lot better than bonds

I will try to write a bit more about the company later but for now let me just give you this to think about:

NFI is a REIT (Real Estate Investment Trust). They are by law required to pay out at least 85% of their earnings to shareholders but they aim to pay out 100%.

The earnings estimates for 2005 is 4.87 and for 2006 is 5.23. With my price per share that equals an interest of 16% for 2005 and 17% for 2006. Not too bad but it becomes better.

You see normally we look at EPS to measure the value of a stock, but in the case of REIT's you should actually look at Taxable income and that is much higher! The didiend for this year is therefore $5.6 per share or 18%. Obviously this kind of ridicoulous valuation will not continue for ever so I am mainly buying to profit from the increase in PPS but in the meanwhile I am enjoying 18% interest

It was a bit of a surprise for me that people were willing to split with their shares for 30.87 on Friday and that is where the story begins......

[stout7735]

I think the majority of their income is by selling un-conventional mortgages on owner occupied homes which they repackage and sell to investors in the form of bonds...The reason the stock price  is  declining is increased risk due to  increasing interest  rates and anticipated high repo rate on upside down loans...

However,if the stock price continues to decline,NFI will become irresistable  because its dividend  will outweigh risks...A buyer must be optimistic on the U.S. economy...

[Michael]

Hi stout,

you are right about their business and partly right about the reason for the decrease in PPS. (I will write a bit about the part which you are not correct about, when I have settled in in Mozambique).

The stock prices of REIT's in general are very depressed and it is not unusual to see a dividend yield above 10. NFI's dividend yield is however extremely high. This is very interesting as NFI is one of the REIT's that most likely will benefit from an increase in interest rates. Now to understand this you have to know a bit more about their business.

NFI provides subprime mortgages. Another and less flattering way to say this is that NFI provides loan to pepole who otherwise would not have access to financing. The typical customer use NFI's mortgage to get rid of their high interest debt like credit card debt.

This segment of the market is expected to grow when the interest increase. As matter of fact NFI's profitability has increased even faster than the interest. Their dividend today is 12 times higher than in 2001.

Last quarter loan originations were up 19%, net interest income was up 51% and loan under management grew 42%.

For any other company with this kind of impressive growth the share price would be 200 to 300% higher than NFI's price on Friday. But NFI is special, very special and that creates a unique buying opportunity for the people who knows. but more on that later.......

[Michael]

I promised some time ago a little update on NFI and I think the time has come.

Since then NFI has published Q3 which was good as expected (the 2006 dividend is now in the bank - that is guaranteed yield next year of 17.5%).

Also since then I got my $1.4 dividend thank you very much! That equals a quarterly yield of 4.5%. I know that this is not the right forum to talk about yield but I like to have a few high yield stocks in my portfolio. At my age I have to think about retirement!!!

And finally the stock is up with 4.8%.

Now here is the really interesting part. NFI has been on the Naked Short list (reg. SHO) for 91 days. Nothing new there but I have the feeling that we might be looking at a real default of delivery this time.

Rocker and Partners are short NFI in fact Rocker and Partners is short 30% of all Reg. SHO on NYSE and at least 20% of Reg SHO on Nasdaq and all signs seems to indicate that he is in trouble delivering the shares. Some of his famous shorts are NFLX which is up 300% since they were added to the Reg. SHO list (224 days on the list) and OSTK (152 days on the list) who has suit him for manipulating the stock price.

Rocker and Partners has had a nice time for some years when they grossly have manipulate shares with good help from TheStreet.com (which they happens to own 7.6% of) but it seems like the recent bull market has finally caught up with him.

From a shareholder point of view failure to deliver is not a problem. It is rather a blessing in disguise. If David Rocker fails to deliver it is the problem of the guys who were stupid enough to borrow him the shares. They would most likely try to buy the shares in the open market, which could be very interesting.

NFI has 9.6 million shares short. That is a mind bubbling 30% of the float of a stock that pays around 17% dividend per year (what the h... are they thinking  ).

Don't be surprised to see NFI hit the headlines in 2006. But before then we will see a significant increase in the price (IMHO).

Mike

[gambler2075]

ah yes... the nfi- rocker connection... this website is truly an interesting read.

http://www.nfi-info.net/shorts.htm

I'm thinking about getting in.
my brother (bless his heart) went long on navre at 3.38 and just got out at 6.20 (yup, 1 penny BELOW the HOD friday!!!, but only 1342 shares)

and also went long on ovti at 12.20, out at 17.45. both were rocker shorts... of course I had the infinite wisdom to get pounded on gnbt in the meantime. OOPS. 

nfi IS very interesting, and I'm looking into it (hopefully after sgtl runs for the next 3 days... lol )

[Michael]

Yes David Rocker has a special place in my heart. He quite often get it right but sometimes he gets it spectacularly wrong. He really has a problem admitting when he is wrong.

The first time I had the pleasure of betting against David Rocker was PLMD. One of the best investments I have ever made.

This time from what I can see he is in real problems. It seems like he has been caught at the wrong side of the fence on several stocks. Rocker and Partners are one of the smaller hedge funds and they might be in serious trouble.

This is however not the main reason to buy NFI. NFI is a fundamentally very attractive investment. The Rocker Partner issue is just icing on the cake

The NFI-INFO site is a goldmine for information on Novastar and short selling in general. I can only recommend anybody interested in NFI to visit it!

Mike

[Michael]

NFI has a board meeting on Wednesday when the next dividend will be declared. They have in principle $197 million, which they need to pay out (more than $8 per share). They are however quite conservative with dividend payments so I only expect them to pay $1.4. That is still a 5% quarterly yield or 20% on an annual basis.

4.5 years left and my shares will be free of charges. I just love this beauty!

[Michael]

NFI has finally released their earnings after a little hick-up with their auditors.

The results look great at a first glance. The also confirmed that they expect to pay $5.6 in dividend for this year. That is a 21.2% dividend yield. I just love this stock!

Mike

[Michael]

The yield has just dropped to 18.40%. Sorry about that but it seems like the market liked the resolution of the tax issues and the earnings release.

Earnings were excellent but I am not sure it was enough to initiate a short squeeze. We will probably trade in the thirties for some time. With my quarterly didend I really don't mind. As long as the shorts are able to send me a fat check every month I am happy.

Mike

[BigSully1]

Very bad news for another subprime lender. "Novastar Flames Out"

http://www.thestreet.com/_yahoo/newsanalysis/banking/10339886.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

[Michael]

Who is buying now?

Well I guess nobody is buying NFI today so I am

As I have said in a few private messages I really don't like REIT these days or let me say it in another way I am very bearish on the US housing market.

I am sure NFI will go through a couple of rough years but I believe they will survive and ex the dividend the management has promised for this year the stock is now trading at a market cap of around 200 million. That is clearly an overreaction to the news in my opinion.

So everybody is bailing out which for me is a bullish sign. Wish me luck because this is obviously a risky investment and requires a realcoolhead 

[setravis]

Press Release Source: NovaStar Financial, Inc.


NovaStar Financial Common Stock Will Trade Adjusted for a One-for-Four Reverse Stock-Split on Monday, July 30, 2007
Friday July 27, 4:00 pm ET


KANSAS CITY, Mo., July 27 /PRNewswire-FirstCall/ -- NovaStar Financial, Inc. (NYSE: NFI - News), a residential lender and mortgage portfolio manager, today announced that it effected a one-for-four reverse stock split of its outstanding common stock. NovaStar's common stock will trade, adjusted for a one-for-four reverse stock split, on Monday, July 30, 2007 under a new CUSIP number -- 669947889.

 
As a result of the reverse stock split, every four shares of common stock were changed into one share of common stock. No fractional shares of common stock of NovaStar were issued upon the effectiveness of the reverse stock split. Instead, each stockholder otherwise entitled to a fractional share is entitled to receive in lieu thereof cash in an amount equal to the product of the fraction of a share multiplied by the closing price of NovaStar's common stock as reported by the New York Stock Exchange on July 27, 2007. Stockholders will be receiving information from NovaStar's transfer agent regarding the mechanics of exchanging their share certificates and receiving cash in lieu of fractional shares.

Immediately after the reverse stock split, NovaStar had 50,000,000 shares of common stock, par value $0.01 per share, authorized, approximately 9,469,910 shares of common stock, par value $0.01 per share, outstanding, and approximately 40,530,090 shares of common stock, par value $0.01 per share, authorized but unissued. No changes were made to the number of outstanding shares of NovaStar's 8.90% Series C Cumulative Redeemable Preferred Stock or NovaStar's 9.00% Series D1 Mandatory Convertible Preferred Stock as a result of the reverse stock split.

About NovaStar

NovaStar Financial, Inc. (NYSE: NFI - News) is a specialty finance company that originates, purchases, securitizes, sells and invests in nonconforming loans and mortgage-backed securities. The Company also services a large portfolio of residential nonconforming loans. NovaStar specializes in single-family mortgages, involving borrowers whose loan size, credit details or other circumstances fall outside conventional mortgage agency guidelines. Founded in 1996, NovaStar efficiently brings together the capital markets, a nationwide network of independent mortgage brokers and American families financing their homes. NovaStar is headquartered in Kansas City, Missouri, and has lending operations nationwide.

For more information, please reference our website at http://www.novastarmortgage.com.

This press release may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management's beliefs, estimates, projections, and assumptions. Actual results and operations for any future period may vary materially from past results. Some important factors that could cause actual results to differ materially from those anticipated include: our ability to consummate our recently announced transactions, our ability to generate sufficient liquidity on favorable terms; our ability to sell loans we originate in the market place; the size, frequency and structure of our securitizations; impairments on our mortgage assets; increases in prepayment or default rates on our mortgage assets; increases in loan repurchase requests; inability of potential borrowers to meet our underwriting guidelines; changes in assumptions regarding estimated loan losses and fair value amounts; finalization of the amount and terms of any severance provided to terminated employees; finalization of the accounting impact of our previously announced reduction in workforce; events impacting the subprime mortgage industry in general, including events impacting our competitors and liquidity available to the industry; the initiation of margin calls under our credit facilities; the ability of our servicing operations to maintain high performance standards and maintain appropriate ratings from rating agencies; our ability to generate acceptable origination volume while maintaining an acceptable level of overhead; the stability of residual property values; our continued status as a REIT; interest rate fluctuations on our assets that differ from our liabilities; the outcome of litigation or regulatory actions pending against us or other legal contingencies; our compliance with applicable local, state and federal laws and regulations or opinions of counsel relating thereto and the impact of new local, state or federal legislation or regulations or opinions of counsel relating thereto or court decisions on our operations; compliance with new accounting pronouncements; the impact of general economic conditions; our ability to adapt to and implement technological changes; our ability to successfully integrate acquired business or assets with our existing business; and the risks that are from time to time included in our filings with the SEC, including our Annual Report on Form 10-K, for the year ended December 31, 2006, and our quarterly report on form 10-Q, for the period ending March 31, 2007. Other factors not presently identified may also cause actual results to differ. Words such as "believe," "expect," "anticipate," "promise," "plan," and other expressions or words of similar meanings, as well as future or conditional verbs such as "will," "would," "should," "could," or "may" are generally intended to identify forward-looking statements. This press release speaks only as of its date and we expressly disclaim any duty to update the information herein.
--------------------------------------------------------------------------------
Source: NovaStar Financial, Inc.

[setravis]

AP
NovaStar Effects Reverse Stock Split
Friday July 27, 6:23 pm ET 
NovaStar Effects a 1-For-4 Reverse Stock Split


KANSAS CITY, Mo. (AP) -- Mortgage real estate investment trust NovaStar Financial Inc. said Friday it effected a previously announced one-for-four reverse stock split.
The reverse stock split changed every four shares of common stock into one share, and no fractional shares were issued. Instead, each shareholder entitled to a fractional share can receive cash equal to the amount of the share fraction times the closing price of NovaStar's common stock on Friday.

The stock will begin trading on a split-adjusted basis Monday July 30,2007.

After the reverse stock split, NovaStar has nearly 9.5 million shares outstanding.

NovaStar shares lost 41 cents, or 9.2 percent, to close at $4.06.

[setravis]

AP
Sector Snap: Mortgage Lenders
Monday July 30, 11:51 am ET 
Shares of Mortgage Lenders Mostly Fall After AHM Discloses Frozen Dividend, Margin Calls


NEW YORK (AP) -- Shares of mortgage lenders mostly fell Monday after American Home Mortgage Investment Corp. suspended its dividend and said some of its lenders want their money back.
American Home Mortgage Investment late Friday said it would not pay the 70 cent per share dividend scheduled to be distributed that day. The Melville, N.Y.-based lender said it needs to hang onto its cash until it gains a better understanding of how badly conditions in the mortgage industry are going to deteriorate.


The company said some of its lenders want their money back because the collateral securing their credit lines -- home loans -- has lost so much value. American Home Mortgage said the decaying credit and sinking home prices forced it to assume its portfolio of mortgage loans and loan-backed bonds was worth a lot less.

Analysts from JMP Securities, Lehman Brothers and RBC Capital Markets downgraded American Home Mortgage Investment's stock. The company's stock plunged in premarket trading, but was halted by the New York Stock Exchange when the opening bell rang.

Shares of Countrywide Financial Corp., which last week reported a steep drop in second-quarter profit as bad credit ate $710 million out of the value of its portfolio, dipped $1.05, or 3.5 percent, to $28.86. The shares touched a three-year low of $28.25.

Shares of IndyMac Bancorp also touched a multiyear low, at $20.36. In morning trading, the stock was down $1.63, or 7.1 percent, to $21.40.

Shares of Impac Mortgage Holdings Inc. sank 33 cents, or 10 percent, to $2.96. The stock hit as low as $2.87, the cheapest trade since 2000.

Shares of NovaStar Financial Inc. dropped $2.26, or 13.9 percent, to $13.98.

However, not all mortgage lenders' stocks fell. Shares of Accredited Home Lenders Holding Co. climbed 52 cents, or 5.5 percent, to $10.01.

Lone Star Fund V L.P., the buyout shop that last month offered to buy Accredited Home Lenders for $400 million, extended its expired tender offer until next month. Keefe, Bruyette & Woods analyst Bose George said some investors are likely relieved Lone Star did not slash or withdraw its bid.