Vulture & Value Investing With Chimera Investment (CIM, NLY, LM)

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Chimera Investment (NYSE: CIM) is an investment vehicle that is set up to invest in mortgages per its charter, although as we noted the day of the initial filing that this is going to effectively be nothing short of a vulture fund.  We have not been able to get data out of the company as of yet to see how much of the roughly $500 million raised in the IPO (before fees) has been placed in distressed assets to date, and frankly we’re pretty sure that Chimera doesn’t want that data out there.

This morning on CNBC, Dennis Gartman of the famed Gartman Letter noted besides covering short sales in many of his financial names that as far as being long any financial stocks he would look at Chimera and he noted the Annaly ties.  We’ve noted how Jim Cramer already got on board with this one last month. 

Also just this week (on Tuesday) Deutsche Bank initiated coverage on Chimera with a BUY rating.  Keefe Bruyette Woods started this with a peer perform rating last month and they are a premiere financial sector-focused brokerage and research house.

24/7 Wall St. has been positive on the notion of this investment vehicle even since before the IPO as this is essentially run as a distressed mortgage asset buyer by the people at Annaly Mortgage (NYSE: NLY), and Annaly is roughly 10% owner of Chimera.  It is our stance that the heads of Annaly know what they are doing in this sector and will be able to find value while everyone is in panic and crisis mode.

Remember that when you want to bet like a vulture investor you often do better betting on the best vulture than betting on the carcass.  So in Chimera, there are opportunities for value investors and speculators alike.  This has traded in a range of $14.50 to $18.83 since coming public at $15.00 in November and it closed at $17.93 yesterday. 

It also appears that Legg Mason (NYSE: LM) via its Legg Mason Opportunity Trust took an 8.93% stake in the company in a December filing.  Copper River Partners showed that they owned a 5.2% stake at the end of November.

Jon C. Ogg
January 17, 2008