This August’s temperature is not the only thing that will rise. The benchmark S&P500 index has virtually been unstoppable since its March 23rd, 2020 bottom. The widely-followed index has seen a steady rise of 98% in just 16 months, seemingly hitting record after record.
Although some investors may be reluctant to invest in the wider market, which is constantly at new highs and accelerating, history has proven that it is always a good time to purchase high-quality companies. These top stocks are sure to make investors richer in August and beyond.
Annaly Capital Management
It’s worth looking into if there is a value/income stock that’s worth trading right now. The transparent disclosure policy of The Motley Fool explains why I don’t own it. I simply can’t keep my mouth shut about Annaly in recent articles and I don’t have the funds to buy it.
Many people find the model of a mortgage REIT intimidating or complicated. The operating goal of mortgage REITs such as Annaly is quite simple. Annaly borrows money at low short-term rates to purchase higher-yielding assets such as MBSs (mortgage-backed securities). The net interest margin is the difference between the higher-yielding MBSs (higher yielding) and the borrowing rate. The net interest margin is generally larger and more profitable for Annaly.
Here’s where the fun begins. Annaly Capital Management and its mortgage REIT peers are both interest rate sensitive. Annaly’s net interest margin often falls when the Treasury yield curve flattens or the Federal Reserve makes significant adjustments to federal funds target rates (e.g. 50 basis points at a given time).
As the yield curve becomes steeper and long-term yields rise, the net interest margin for mortgage REITs tends to widen. The most common time when the yield curve steepens is in the middle to early stages of an economic recovery is right now. In other words, the next few years should see Annaly’s peak operating performance.