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Editor’s note: This column is part of InvestorPlace.com’s Best Stocks for 2020 contest. Louis Navellier’s pick for the contest is PennyMac Financial Services (NYSE:PFSI).
It might not be a household name, but PennyMac Financial Services (NYSE:PFSI) is certainly getting the attention of investors these days.
PFSI is one of the top four mortgage lenders and servicers in the United States. And it’s the No. 1 issuer of government loans like Federal Housing Administration and Veterans Administration mortgage products. This is an especially good sector — and one set to shine — since these loans are underwritten by the U.S. government. Why does this matter? It takes some of the risk off the originator.
Perhaps the reason you have not heard of this company is that it’s relatively new to the market, opening its doors in the teeth of the financial crisis in 2008 and going public in 2013. Some of the major players have been around for decades, if they survived the devastation of the financial crisis.
Before PFSI launched its IPO, it spun off a sister company, PennyMac Mortgage Investment Trust (NYSE:PMT), which is structured as a real estate investment trust (REIT). This illustrates the savvy management at PFSI.
Sisters PFSI and PMT Work Perfectly Together
This arrangement allows PFSI to originate the loans and then sell them PMT to service. As a REIT, PMT offers a big dividend, currently around 10%. PFSI can focus on the growth side of the business without having to manage the risk on the back end.
It is a testament to this hedging strategy that PMT is down 25% in the past year due to pandemic default risks while PFSI is up 95% over the same time