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Mortgage Buys: Ellie Mae & Pennymac

 May 30, 2012 12:51 PM


by Jim Oberweis, Jr., editor The Oberweis Report

The May 24th edition of the Financial Times just ran a cover story titled "The Death of Equities?", reminiscent of the 1979 Business Week cover story of the same title.   

Similar to today, investors were disgusted with the stock market after sustaining serious losses. But as is often the case after periods of large market declines, the doomsayers all turned out to be wrong.

 By the end of the following year, equities finished up 26%. They rose 54% over the next five years and 1,100% over the next 20 years.

Behavioral psychologists have documented the tendency of human beings to over-extrapolate the recent past in predicting the future.  

After large stock market losses, the future often plays out less badly than anticipated. Buying at peak levels of fear (which usually correlate with extremely inexpensive stock valuations) can lead to fat returns for the courageous few.  

Meanwhile, here's a look at two of our featured recommendations, both involved in the mortgage sector: Ellie Mae (ELLI) and PennyMac Mortgage Investment Trust (PMT). Both stock may be appropriate for risk oriented investors. 

Ellie Mae provides business automation software that helps streamline and automate the process of originating and funding new mortgage loans, increasing efficiency, facilitating regulatory compliance and reducing documentation errors.  

The Ellie May network electronically connects 54,000 mortgage professionals to mortgage
lenders, investors and service providers.

During 2011, approximately one-third of the total U.S. residential mortgage applications were initiated over Ellie May solutions.  

In the company's latest reported first quarter, sales increased approximately 97% to $20.9 million from $10.6 million in the first quarter of last year.  

Ellie Mae reported earnings per share of $0.20 in the latest reported first quarter versus a loss in the same quarter of last year. Clients of Oberweis Asset Management own approximately 157,000 shares.

PennyMac Mortgage Investment Trust is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets.  

The company has been focused on investing in distressed mortgage assets which are purchased at discounts that reflect their distressed state or perceived higher risk of default.  

In addition to an interesting growth profile, the stock offers investors a quite attractive approximate 12% yield.  

In the company's latest reported first quarter, revenues increased approximately 170% to $46.6 million from $17.3 million in the first quarter of last year.  

PennyMac reported earnings per share of $0.65 in the latest reported first quarter versus $0.35 in the same quarter of last year. Clients of Oberweis Asset Management own approximately 133,000 shares.

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