Arlington Asset Story Overview

AI -- USA Stock  

USD 10.27  0.08  0.79%

Macroaxis News
  
By David Taylor

Arlington Asset Investment Corp is an investment firm that has a portfolio of Mortgage Backed Securities (MBS).  They have agency and private securities.  They also hold real estate investments via a REIT.  

MBS were the instruments that created the financial meltdown of 2008 and the subsequent Great Recession.  These instruments were riddled with bad investments, false reporting and a hierarchy that even today no one really understands.  And, yet, there is potential in AI.  

Trading
Fama & French Classification
Ismay be time to get back into MBS companies, especially this company that is discounted to the industry.

nvestors are already pushing these company’s stocks upward.  That is why the industry average is as high as it is with P/E.  But, around the market there are bargains to be had.  AI is one of them.  My thinking is that given all of the variables around this company, investors are going to want to find value and are going to use algebra to get there.  AI is the underpriced company to do just that.  For the stock to get to the average, which it is trading currently at $15.27, the stock would push upward another $9.00 to about $24.00.  That is a substantial move.  




Arlington Asset Investment Corp is an investment firm that has a portfolio of Mortgage Backed Securities (MBS).  They have agency and private securities.  They also hold real estate investments via a REIT.  

MBS were the instruments that created the financial meltdown of 2008 and the subsequent Great Recession.  These instruments were riddled with bad investments, false reporting and a hierarchy that even today no one really understands.  And, yet, there is potential in AI.  

What I am looking at is the valuation of this company relative to the industry.  AI is priced 50 percent below the industry average and the sector average.  Whereas the entire stock market is averaged about 25 times earnings the P/E ratio for AI is 18.11 times.  Further, the industry average is about 27.75 times P/E ratio.  This represents an opportunity as the market is going to start looking for bargains.  

Another aspect that caught my eye is the Price/Asset ratio which in the case of AI is 3.68.  However, the rest of the industry is averaging about 12.  That puts this company at a discount of .3 to the rest of the industry.  There is potential in the makeup of this company to move upward with its stock price and get to the industry and sector average.  

Investors are already pushing these company’s stocks upward.  That is why the industry average is as high as it is with P/E.  But, around the market there are bargains to be had.  AI is one of them.  My thinking is that given all of the variables around this company, investors are going to want to find value and are going to use algebra to get there.  AI is the underpriced company to do just that.  For the stock to get to the average, which it is trading currently at $15.27, the stock would push upward another $9.00 to about $24.00.  That is a substantial move.  

At the same time, it is important to note that the EPS ratio is historically high.  There is very little juice to squeeze out of the market from some of these companies.  A lot of what pushed the overall market higher is the sense that investors were buying into the future earnings of companies.  At the same time, investors were celebrating a republican win for president thinking that the economy would soar because of that.  Well, that honeymoon may very well be over.  

But, the economy is expanding continually.  And, Americans are seeing their incomes increase, and subsequently, are spending more money.  That translates into further growth in the economy, and lower risk for an investment firm such as AI.  

At the same time, earnings over the past several years have been declining to negative, but are rebounding for the year 2016:

2012:  $18.02  

2013:    $3.09  

2014:    $0.39  

2015:   -$3.02 

With a return to positive earnings for the year 2016, the stock should push higher.  In fact, there has not been much of a change in assets over the past several years.  That means AI may very well see earnings as high as 2012’s $18.00 per share.  Given that, if the company were to hit the same P/E ratios, that would put the stock at nearly $200.00 per share.  It is currently at $15.27 per share.  That would be a tremendous move in the stock price. 

But, what I see mostly, discounting all the other information is the potential of the stock to reach the industry average.  That in itself is the opportunity that should push the stock higher. 

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Arlington Asset is rated below average in current valuation category among related companies. Enterprise Value is a firm valuation proxy that approximates current market value of a company. It is typically used to determine takeover or merger price of a firm. Unlike Market Cap, this measure takes into account the entire liquid asset, outstanding debt, and exotic equity instruments that company has on its balance sheet. When takeover occurs, the parent company will have to assume the target company's liabilities but will take possession of all cash and cash equivalents.
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