“Buy low and sell high” is a saying as old as investing itself. It sounds simple but it is actually more complicated.

How do we define low? Is this the price we are talking about or the valuation? And for selling, you will only know what is high in hindsight. A better goal might be to purchase good companies at a great value and invest long term.

If you can find good value stocks with long-term growth possibilities, then you are doing pretty well. Here is one such stock priced under $10 right now that you should investigate.

Mortgage lending heavyweight

UWM Holdings (UWMC) is among the country’s leading mortgage lenders (its full name is United Wholesale Mortgage). It is the second-largest residential lender and the number one wholesale lender overall, with 34% of the market as of 2020.

UWM partners with third-party brokers to give loans, as compared to retail lenders like Rocket, who offer their loans directly to borrowers.

The company was created in 1986 and was the largest wholesale lender for the previous six years. It went public on Jan. 22 after combining with an SPAC, Gores Holdings. Since UWM started selling at around $11.50 a share, it declined roughly 27% to $8.40. That lowered the stock’s forward price-to-earnings ratio to around 8.5 — not bad for a market leader with strong growth potential.

The mortgage industry can be cyclical, as we saw over the previous year. In 2020, the company had record numbers with $182 billion in loans, a 69% boost over 2019, which was the previous record. It brought in $3.38 billion in net income in 2020, which was a 715% raise over 2019.

With last year being amazing for the industry amid record low interest rates and a skyrocketing amount of refinancings. What happens now? CEO Mat Ishbia says it is only a start. The company has key advantages on what to build, as he spoke about on the Q4 earnings call for 2020.

“2020 was not a high point to us. It’s a starting point from where we are going, and that’s our plan. So, we’re going to keep building our business. We are well stationed for the future. And we see growth in 2021, and we are very excited about it., Ishbia said.

The company’s key advantages going into 2021 are:

First, over the previous years, it has put in millions into technology making its systems better than its competitors, on average, and lowering the time it takes for brokers to finish deals. That makes for a cheaper and faster deal for everyone, including the end borrowers.

Second, the CEO says he believes the wholesale sector will expand as the model gives borrowers the option to find better deals through brokers using its website, findamortgagebroker.com. The company says it will market that website, starting with their Super Bowl ad earlier this year.

Overall, UWM also says it expects loan origination growth through 2021 and beyond, and analysts are optimistic on its possibilities, giving the stock a median price target of $11 over the next year.

This company, as a market leader, has increased its loan volumes through numerous environments over the previous six years and should keep going. Priced at under $10 a share, UWM is a wonderful buy.

 

Author: Blake Ambrose

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