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Watch Out: Barbarians At The Gate For Two Harbors Investment (TWO)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Two Harbors Investment ( TWO) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Two Harbors Investment as such a stock due to the following factors:

  • TWO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $28.2 million.
  • TWO has traded 5.8 million shares today.
  • TWO traded in a range 221.5% of the normal price range with a price range of $0.24.
  • TWO traded above its daily resistance level (quality: 99 days, meaning that the stock is crossing a resistance level set by the last 99 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in TWO with the Ticky from Trade-Ideas. See the FREE profile for TWO NOW at Trade-Ideas

More details on TWO:

Two Harbors Investment Corp. operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), residential mortgage loans, mortgage servicing rights, and other financial assets. The stock currently has a dividend yield of 9.9%. TWO has a PE ratio of 9.7. Currently there are 10 analysts that rate Two Harbors Investment a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Two Harbors Investment has been 3.5 million shares per day over the past 30 days. Two Harbors Investment has a market cap of $3.9 billion and is part of the financial sector and real estate industry. The stock has a beta of 0.56 and a short float of 1.4% with 1.95 days to cover. Shares are up 13.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Two Harbors Investment as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 2327.34% to $456.25 million when compared to the same quarter last year. In addition, TWO HARBORS INVESTMENT CORP has also vastly surpassed the industry average cash flow growth rate of 30.28%.
  • The gross profit margin for TWO HARBORS INVESTMENT CORP is rather high; currently it is at 69.57%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, TWO's net profit margin of -28.36% significantly underperformed when compared to the industry average.
  • In its most recent trading session, TWO has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 120.3% when compared to the same quarter one year ago, falling from $143.72 million to -$29.15 million.

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