Nationstar Mortgage (NSM) will acquire approximately $215 billion in mortgage servicing assets from Bank of America (BAC). NSM will earn around $4 now in 2013, so even at a price of 40 it is 10x forward earnings estimates.
With today's buyable gap up, NSM has more than corrected for its prior price/volume flaws. The pocket pivot on Friday was lower quality due to these flaws, but today's gap up is buyable. Not all low quality pocket pivots will fail. One could say Friday's action was a clue NSM could outperform in the near future, but it is generally best to stick with rules since odds were that Friday's pocket pivot would fail given the prior basing pattern. As all investors know, keep the odds on your favor and pick your best spots.
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