REM's Holdings Could Mean 10% Gain Potential

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, we have compared the trading price of each holding against the average analyst 12-month forward target price, and computed the weighted average implied analyst target price for the ETF itself. For the iShares Mortgage Real Estate Capped ETF (REM), we found that the implied analyst target price for the ETF based upon its underlying holdings is $11.33 per unit.

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With REM trading at a recent price near $10.32 per unit, that means that analysts see 9.80% upside for this ETF looking through to the average analyst targets of the underlying holdings. Three of REM's underlying holdings with notable upside to their analyst target prices are Dynex Capital, Inc. ( DX), Ellington Residential Mortgaging Real Estate Investment Trust ( EARN), and Invesco Mortgage Capital Inc. ( IVR). Although DX has traded at a recent price of $6.52/share, the average analyst target is 13.11% higher at $7.38/share. Similarly, EARN has 11.34% upside from the recent share price of $12.35 if the average analyst target price of $13.75/share is reached, and analysts on average are expecting IVR to reach a target price of $16.35/share, which is 10.85% above the recent price of $14.75. Below is a twelve month price history chart comparing the stock performance of DX, EARN, and IVR:

DX, EARN, and IVR Relative Performance Chart

Below is a summary table of the current analyst target prices discussed above:

Name Symbol Recent Price Avg. Analyst 12-Mo. Target % Upside to Target
iShares Mortgage Real Estate Capped ETF REM $10.32 $11.33 9.80%
Dynex Capital, Inc. DX $6.52 $7.38 13.11%
Ellington Residential Mortgaging Real Estate Investment Trust EARN $12.35 $13.75 11.34%
Invesco Mortgage Capital Inc. IVR $14.75 $16.35 10.85%

Are analysts justified in these targets, or overly optimistic about where these stocks will be trading 12 months from now? Do the analysts have a valid justification for their targets, or are they behind the curve on recent company and industry developments? A high price target relative to a stock's trading price can reflect optimism about the future, but can also be a precursor to target price downgrades if the targets were a relic of the past. These are questions that require further investor research.

The average analyst target price data upon which this article was based, is courtesy of data provided by Zacks Investment Research via Quandl.com.
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