Trade-Ideas: Western Asset Mortgage Capital (WMC) Is Today's Weak On High Relative Volume Stock

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 Western Asset Mortgage Capital ( WMC) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Western Asset Mortgage Capital as such a stock due to the following factors:

  • WMC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $11.8 million.
  • WMC has traded 279,540 shares today.
  • WMC is trading at 4.05 times the normal volume for the stock at this time of day.
  • WMC is trading at a new low 3.01% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on WMC:

Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The stock currently has a dividend yield of 29.5%. WMC has a PE ratio of 5.1. Currently there is 1 analyst that rates Western Asset Mortgage Capital a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Western Asset Mortgage Capital has been 996,000 shares per day over the past 30 days. Western Asset has a market cap of $621.6 million and is part of the financial sector and real estate industry. The stock has a beta of 1.51 and a short float of 11.9% with 3.86 days to cover. Shares are up 0.6% year-to-date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Western Asset Mortgage Capital as a sell. The area that we feel has been the company's primary weakness has been its feeble growth in its earnings per share.

Highlights from the ratings report include:
  • WESTERN ASSET MTG CAPITAL CP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WESTERN ASSET MTG CAPITAL CP swung to a loss, reporting -$1.20 versus $3.76 in the prior year. This year, the market expects an improvement in earnings ($2.65 versus -$1.20).
  • 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 on the basis of return on equity, WESTERN ASSET MTG CAPITAL CP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 96.60%. Regardless of WMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WMC's net profit margin of 46.55% significantly outperformed against the industry.
  • Net operating cash flow has increased to $47.65 million or 14.98% when compared to the same quarter last year. In addition, WESTERN ASSET MTG CAPITAL CP has also vastly surpassed the industry average cash flow growth rate of -64.23%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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