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Novastar Financial, Inc (NFI)

Positive outloo...

Positive outlook

mhatmccane

409 posts

Joined
1/20/2006

Positive outlook
Posted: 20 Apr 06 7:47 AM

Looking forward to a great year!
by:

macroboyd (60/M/Wexford, PA)
Long-Term Sentiment: Strong Buy

04/20/06 09:30 am
Msg: 424191 of 424210

While the accounting for MREITS may be esoteric, and the jargon and acronyms of the 10K's may be beyond most mortals, there are a few things which are very easily understood, and these happen to be quite important:

Management's past performance IS an indicator of future performance, and NFI's management has been stellar during the past two years of steady FED rate increases.

A steady and growing income stream of solid dividends during good times and bad, are irrefutable proof of performance.

Carry over taxable income sufficient to insure the next 12 months dividend at a minimum of the current level can only be considered positive.

Increasing production month over month, quarter over quarter, and year over year, while at the same time improving WAC, (weighted average coupon) is surely a sign of vigor and bodes well for the future.

After two years of raising interest rates the FED is now signaling that they are very close to being done. Regardless of the ACTUAL impact on NFI, the market perceives that when the FED stops raising it will be good for ALL interest sensitive stocks, and all MREITS will rise with the rising tide, as we have seen over the past couple of days, following the FOMC minutes which indicated we are near to an end of rate increases.

NFI mortgages are: fairly well disbursed geographically, primarily under $200,000, covered by mortgage insurance, have a LTV of approx. 80%, and generally cover the primary residence of a working class homeowner. This is not a demographic that is likely to walk away from their mortgage responsibilities.

NFI still represents only about 3% of their market, and therefore have a long way to go before saturation or maturity. They are on a steady, profitable growth PLAN, and have shown that they are able to modify that plan as needed, according to circumstances. For example when some of the other MREITS were getting very aggressive "grabbing up" mortgages with very competitive rates, NFI let production drop a bit so as to maintain the WAC.

Pressure is now coming to the fore against the big hedge funds, the "cooperative press", manipulation, front running and naked shorting. Roaches disappear in the sunlight!

The very heavy short position in NFI at this point bodes very well for the longs, as the mood of the market is changing, and the MREITS in general are being viewed as an undervalued opportunity. It will be interesting to watch how the big shorts unwind their positions, if they haven't already begun to do so. The retail shorts. . .well just let me say that I wouldn't want to be one right now!

Finally, it appears the usury is alive and well in the credit card business, and these folks continue to provide new customers for the sub-prime MREITS.

In summary this is a great company, paying an extraordinary dividend with substantial opportunity for capital gain. It has been beaten down over the past couple of years by massive short selling, unsubstantiated media attacks, and FED rate increases. I am looking forward to a great year for NFI!

Macro

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Specific Stocks

Novastar Financial, Inc (NFI)

Positive outloo...