Taking Stock: PennyMac and Zipcar

Dear Mr. Berko:

I have a new young broker, and I'm not confident he is giving me good advice. I'm 70 and have an IRA worth $163,000 and a joint account valued at $106,000 plus $33,000 in savings. He has recommended that I buy 300 shares of PennyMac Mortgage, which I think is a terrible idea. And I want to buy 100 shares of Zipcar, which he says is very speculative, but I think he is wrong. So my wife suggested that I write you, and I will follow your advice. Please tell me what you can about PennyMac and if I should buy it, and tell me about Zipcar and if you think it is a good buy, too.

P.L., Vancouver, Wash.

Dear P.L.:

PennyMac Mortgage Investment Trust (PMT-$17.10) is a real estate investment trust put together by the former big shots at Countrywide financial, ostensibly, to buy troubled home loans. Merrill Lynch botched the underwriting in April 2009 when it sold 16 million shares (supposed to be 20 million) at $20 and the stock quickly nosedived to the $18 level.

PMT is controversial for two reasons: The miscreants who run PMT are former Countrywide executives, and part of its mission statement proclaims (forgive me for being cynical) "to keep borrowers in their homes." Oh, my!

PMT is one of the numerous mortgage REITs investing in portfolios of "scratch and dent" mortgages that have missed payments, mortgages that were approved with missing documentation (which seems to have been a Countrywide specialty) or mortgages in which the mortgagees have low credit scores. These mortgages are usually acquired at a huge discount from insurers that need to clean their balance sheets or purchased via liquidations of failed FDIC-insured banks.

So at yearend 2010, PMT had six employees, assets of $589 million, zero long- or short-term debt, current liabilities of $289 million and a book value of $19.02 per share. Net income was $1.44 per share or $24.5 million, and the $1.68 dividend yields 9.2 percent. The risk is moderate; the dividend is secure and may be raised this year. If the economy continues to improve, there may some capital gains potential. I think your broker gave you good advice, and I applaud his conservative recommendation of 200 shares.

Zipcar (ZIP-$24.49), which came public last April at $18, doesn't float my boat. This hot IPO rents cars by the hour in Boston, New York City, Atlanta, Chicago, Baltimore, Philadelphia and a few other larger cities. And again, I must agree with your young broker.

ZIP, founded in 2000, has made zippo money since it rented its first Yugo. In 2009, ZIP lost $5 million, while last year, with revenues of $186 million, the Zipcar locked $14 million in losses on its income statement. Meanwhile, management has told naive shareholders that it doesn't expect to earn a profit this year, either.

Members pay $60 per year to join, and the hourly rentals run between $8.50 and $13.25. ZIP has 600,000 members and 8,500 cars in 14 metropolitan areas and 230 college campuses. Members pick up the cars at garages or parking lots by swiping their cards on a windshield reader. However, Hertz, Enterprise and the "biggies" have taken notice. Hertz, for instance now has more than 700 hourly cars in the Big Apple.

Meanwhile, ZIP's income statement and balance sheet may take some hard hits unless managements can show a profit soon, but that seems unlikely. I think ZIP is richly overpriced, that it may have to come to the market again to raise more money and that the shares may be a good "short." In fact, I'm zapping ZIP because I think management should have remained in the cigarette-lighter business. And I applaud that young broker on another good call.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Wed, Jun 15, 2011