Lument Finance Trust, Inc. (LFT): A Bull Case Theory

We came across a bullish thesis on Lument Finance Trust, Inc. (LFT) on Value Degen’s Substack by Unemployed Value Degen. In this article we will summarize the bulls’ thesis on LFT. Lument Finance Trust, Inc. (LFT) share was trading at $2.57 as of Sept 17th.

Lument Financial (LFT) presents a unique opportunity within the commercial real estate sector, which has been marred by negative sentiment, particularly around office towers. However, this focus on office real estate overshadows stronger areas like multifamily housing, where Lument operates. Multifamily properties are expected to maintain solid rental growth as rising interest rates make new construction expensive and the housing demand is supported by millions of new immigrants. LFT focuses on bridge loans to middle-market multifamily operators, making it well-positioned in a sector that has remained resilient. As a subsidiary of ORIX, a major financial services company, LFT benefits from significant resources while still being mispriced as a small cap. This provides the company with access to expertise and low borrowing costs, enhancing its profitability.

One of the key aspects of LFT’s business model is borrowing long-term at favorable rates and lending short-term at higher rates. This spread protects the company from interest rate volatility, at least until the loans mature. Currently, LFT’s portfolio is 93% collateralized by multifamily properties, with a weighted average term of 30 months. Although rising interest rates have impacted property values, LFT lends for value-added redevelopment, where renovation plans typically increase a property’s value over time. A potential downside is that the pipeline for new bridge loans has slowed, meaning capital could be returned to shareholders rather than redeployed, but given the discount to tangible book value, this could still yield strong returns.

Management is optimistic about the future, expecting the loan pipeline to reopen as interest rates decline. As multifamily properties are sold, bridge loans for renovation could increase, providing LFT with new opportunities. A key risk remains defaulted loans, particularly if collateral values decline further, but management's insider buying signals confidence in the business, with purchases above the current share price. While volatility remains, especially heading into election season and potential rate cuts, LFT offers a compelling income opportunity. With the stock trading at $0.70 to tangible book and a 12% annual income stream, it presents an attractive option for income investors looking to diversify beyond traditional sectors like shipping and energy.

Lument Finance Trust, Inc. (LFT) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held LFT at the end of the second quarter which was 4 in the previous quarter. While we acknowledge the risk and potential of LFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.

Disclosure: None. This article was originally published at Insider Monkey.