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NEW YORK (TheStreet) -- Annaly Capital Management (NLY) closed down 3.5% to $11.71 in Tuesday trading, moving in sympathy with competitor American Capital Agency Group (AGNC) . The mortgage real estate investment fund (REIT) saw 26.2 million shares change hands, well over its three-month average daily trading volume of 13.9 million.

American Capital reported a third-quarter loss of $1.80 a share, compared to analysts' expectations of 77 cents a share, according to Thomson Reuters' figures. The company blamed volatility in interest rates and mortgage spreads for the earnings loss, two factors which significantly influence Annaly Capital operations. Annaly expects to report third-quarter earnings on Nov. 4.

Also influencing shares, TheFinancial Timesrecently reported the New York Federal Reserve instigated a "deep dive" into the relationship between banks and mortgage REITs. The Fed is concerned if interest rates should succumb to volatility, mortgage REITs might diminish their stake in mortgage-backed securities (MBS), sparking a market selloff on a larger scale. The FT noted the firms have increased MBS holdings by 188% since 2009 to a combined $460 billion stake.

TheStreet Ratings team rates Annaly Capital Management as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

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TheStreet Recommends

"We rate Annaly Capital Management (NLY) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 1897.1% when compared to the same quarter one year prior, rising from -$91.16 million to $1,638.21 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, Annaly Capital Management's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Annaly Capital Management reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, Annaly Capital Management increased its bottom line by earning $1.69 a share vs. 49 cents a share in the prior year. This year, the market expects earnings to be in line with last year ($1.69 vs. $1.69).
  • NLY has underperformed the S&P 500 Index, declining 23.59% from its price level of one year ago. 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.
  • Net operating cash flow has significantly decreased to -$3,820.86 million or 192.63% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.