“Fed says no rate hikes until at least late 2014,” the headlines read Wednesday.
That was music to my ears…
You see, in my True Wealth newsletter, we own a handful of investment recommendations that could make you 60%-plus in the next two years if the Federal Reserve artificially keeps rates low…
And now we have another year on our “free pass” from the Fed, since interest rates will remain around 0% until the end of 2014.
I recommend stocking up on companies whose business model is to capitalize on interest-rate manipulations by the Federal Reserve…
“The leader in this pack has always been Annaly Capital Management,” I told you a month ago. I believe Annaly (NLY) could make you 60%-plus over the next two years, as I’ll explain in a minute.
In that essay, I explained why Annaly is such a great value right now…
It’s trading near its book value (a rough measure of liquidation value). And thanks to the Federal Reserve’s policy of artificially keeping short-term interest rates low (and promising to do so for the next 18 months), Annaly will be able to borrow cheaply for the next 18 months, at least. So Annaly will still be able to earn a wide enough spread to pay solid dividends.
[ad#Google Adsense 336×280-IA]Wednesday, that story just got better. The Fed extended its free pass another year… to the end of 2014. As a result, Annaly will be able to borrow for next-to-nothing through the end of 2014.
Annaly’s business is not very exciting… It simply borrows money at 1.5% and invests it in safe, “boring” bonds. It only buys bonds that have zero credit risk because they’re 100% guaranteed by the government.
It’s not “sexy”… But it can make you rich…
You see, Annaly has earned investors a 636% return over the last 15 years. And much of that return has come from dividends…
From late 1997 to today, Annaly’s share price is up just 34%. However, if you reinvested the dividends, you’ve increased your money more than sixfold.
Wednesday, the Fed extended Annaly’s free pass until the end of 2014. Annaly should be able to continue to pay big dividends by borrowing at a low rate and investing that money (with no credit risk) at a higher rate.
Even better, the shares are cheap, trading near book value.
In short, I believe you could make gains of over 60% in two years on this “boring” stock. Here’s how…
I expect investors will go on a desperate hunt for yield this year. I believe they will discover Annaly as a safe, double-digit yielder… and they will drive it from its current price near book value up to as much as a 35% premium to book value. That would give you a 35% gain in the share price.
Add in the 14% a year that Annaly is paying in dividends for at least the next two years, and your gain swells to over 60%.
The Fed just gave us a free pass in Annaly until 2014. Take advantage of it.
Consider buying shares of Annaly now, if you don’t own them already. Take profits if the stock rises 35% – whenever it hits 1.35 times book value. Otherwise, collect your solid, double-digit dividends while you wait for others to push Annaly’s share price up.
Good investing,
Steve
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Source: Daily Wealth