3 Reasons to Avoid AGNC and 1 Stock to Buy Instead

AGNC Investment trades at $10.74 and has moved in lockstep with the market. Its shares have returned 15% over the last six months while the S&P 500 has gained 11.2%.

Is now the time to buy AGNC Investment, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Do We Think AGNC Investment Will Underperform?

We don't have much confidence in AGNC Investment. Here are three reasons there are better opportunities than AGNC and a stock we'd rather own.

1. Revenue Spiraling Downwards

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.

Over the last five years, AGNC Investment’s demand was weak and its revenue declined by 51.9% per year. This was below our standards and signals it’s a low quality business.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for AGNC Investment, its EPS and revenue declined by 9.5% and 51.9% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, AGNC Investment’s low margin of safety could leave its stock price susceptible to large downswings.

3. Substandard TBVPS Growth Indicates Limited Asset Expansion

Tangible book value per share (TBVPS) serves as a key indicator of a bank’s financial strength, representing the hard assets available to shareholders after removing intangible assets that could evaporate during financial distress.

Disappointingly for investors, AGNC Investment’s TBVPS grew at a weak 1.1% annual clip over the last two years.

Final Judgment

AGNC Investment falls short of our quality standards. That said, the stock currently trades at 1.2× forward P/B (or $10.74 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Would Buy Instead of AGNC Investment

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