Annaly Capital Management

(NLY) - Get Annaly Capital Management, Inc. Report

shares are approaching 52-week lows set last month following a pair of downgrades last week, though downside appears limited for the stock.

Indeed, an analyst behind one of the recent downgrades says he would probably raise his recommendation once again if the stock fell much lower than Monday's $14.20 close.

"Annaly's book value is over $16. The stock's selling notably under book value and these are mark to market book values, so they could start liquidating and basically collect that $16-plus for investors, so it's hard for me to see that they'd fall much more," says Gary Gordon, analyst with Portales Partners. "If they do fall much more they'd honestly get cheap and I'd be back recommending them."

Gordon, who lowered his recommendation on Annaly to "sector perform" on Dec. 10 expects even if Annaly is forced to lower its dividend, he doubts the yield will drop below 8%.

"In today's world, I don't know what you're getting in your bank, but I bet it's not 8% Gordon says.

The other downgrade for Annaly last week came from Deutsche Bank's Stephen Laws, who cited lower "portfolio return estimates relative to peers," for Annaly as well as

MFA Financial

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Hatteras Financial Corp.



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Nonetheless, Laws argues the mortgage real estate investment trust (REIT) sector as a whole is attractive due to low price to book value multiples versus his 2013 return-on-equity estimates. Laws favors mortgage REITs such as

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NorthStar Realty



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These companies' shares are up 61%, 40% and 25% respectively year to date through Monday's close on the anticipation of a recovery in the securitization markets.

However, those high returns reflect considerably more downside risk. Laws' bull thesis for these companies relies upon "a strong investment pipeline over the next few years" for both non-conforming loans and commercial real estate debt. Should those things fail to materialize, shares of these high-fliers would likely take a hit. Meanwhile, a mere maintenance of the status quo is all Annaly needs to keep paying out a dividend that yields in the high single digits if not higher.


Written by Dan Freed in New York


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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.