This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

5 Long-Term Stock Plays on Consumer Rebound From FBR

NEW YORK (TheStreet) -- FBR & Co. on Monday recommended five stocks for long-term investors, on the expectation of a recovery in consumer debt levels.

Reports of lackluster holiday sales, despite the best efforts of retailers to pump up "Black Friday" and even sales on Thanksgiving, U.S. consumers continue to show a careful approach to spending.

The aftershock from the bursting of the housing bubble, high unemployment and very slow income growth have brought the level of household debt to 1.04 times annual disposable income from 1.39 times, at the end of 2007, according to data included in a report on "The State of The Consumer Balance Sheet" published by FBR on Monday.

But there are signs that consumers can and will increase their borrowings, and several of the largest credit card lenders have reported year-over-year loan growth

"We believe that the only way consumers can re-lever is if the labor market improves meaningfully, and policies out of Washington loosen the supply of credit; ultimately, this boils down to Economics 101-supply and demand," FBR's analysts wrote.  The analysts also believe that the process of consumer de-leveraging in the United States will end "over the next one to two years."

In addition to improving consumer confidence as unemployment continues to decline, FBR expects a boost to consumer lending as the government takes a less draconian approach on regulations covering consumer lending and mortgage underwriting.  This may include "actions by the [Consumer Financial Protection Bureau] to loosen credit," as well as "new initiatives by Mel Watt," the who is expected soon to be confirmed as the director of the Federal Housing Finance Agency, which regulates Fannie Mae (FNMA) and Freddie Mac (FMCC)

Mortgage Stock Picks

FBR's "base case" economic scenario includes annual gross domestic product growth of 1% to 2% over the next five years.  The third-quarter GDP growth rate was 2.8%, accelerating from 2.5% during the second quarter. 

While FBR's base case includes slower GDP growth than we have been seeing, it's quite a rosy scenario for the mortgage industry, including $1.5 billion in loan originations during 2014, which greatly exceeds the Mortgage Bankers Association's current estimate of $1.180 billion. 

For long-term investors, FBR's favorite mortgage plays include Flagstar Bancorp (FBC - Get Report) of Troy, Mich., and HomeStreet (HMST) of Seattle. 

Mortgage lenders have seen a large drop in volume this year, as rising long-term rates have curtailed refinancing applications.  But FBR expects a pickup in home purchase activity to offset further declines in refinancing. 

In addition to Flagstar and Homestreet, FBR includes Stonegate Mortgage Corp. (SGM) of Indianapolis among its list of lenders rated "outperform," that also have  "growing originations and favorable valuations."

Flagstar's shares were down 0.7% in morning trading Monday, to $18.22, while HomeStreet was down 0.4% to $21.08 and Stonegate was down 0.4% to $16.94.

Student Lending

FBR's base case includes an increase of demand for student loans and a recovery of the private student lending market as rising long-term interest rates make the business more attractive for lenders.

The firm's favorite long-term student lending play is SLM Corp. (SLM) which FBR expects to "will continue to outperform on a relative basis in our base-case scenario because demand for higher education has remained relatively constant, even during a weak economy."

SLM's shares were up slightly in morning trading Monday, to $26.69.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
COF $73.58 1.64%
FBC $24.07 1.69%
AAPL $93.64 -0.11%
FB $118.57 0.84%
GOOG $698.21 0.75%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs