To know accurately requires irrefutable information and data.
One cannot refute when one does not have irrefutable information to prove their point. So let's look at statements made.
1) Record Profit for Fannie Mae - Fact or Fiction? Irrefutable fact.
2. Where does all of the profit go minus operating expense and a capital reserve amount? It goes to the US Treasury. (Who still does not know this?)
3. Do preferred or common shares presently receive dividends? No. They do not receive dividends.
4. Is the conservatorship unconstitutional? No, the conservatorship itself is not unconstitutional.
What may be unconstitutional are specific actions taken by the responsible agents of the FHFA and the US Treasury before, during and after the conservatorship was initiated. Whether or not those actions were or were not unconstitutional will be decided in courts of law not by personal assertion and speculaltions on forums.
5. Bashers are Shorting the stock. At least one "basher" on this forum openly admitted shorting the stock. How many more basher shorters there are is anyone's guess since there has been no evidence that identifies and demonstrates the fact that this or that person or numbers of persons are both bashing and shorting the stock or not.
Some people are simply ignorant of the facts and present misleading, negative counter information and these are called bashers. Some people report an accurate, negative side of the situation and these are called bashers. However, are they also shorters? What evidence is there to prove that or disprove it? Also it It clear that some brokerages allow FNMA to be sold short and those with such accounts may do as they please.
Fairholme said it has a $2.4 billion investment in the two companies, whose common and preferred shares have surged this year amid a market-wide embrace of riskier assets. Fannie common shares rose 20% Monday to $2.53 and one preferred share series rose 18%.
Purchased largely this quarter, the Fairholme position is about 90% to 95% preferred stock with the remainder in common stock. He said the shares are split proportionally between the $8.2 billion Fairholme Fund and the $311 million Fairholme Allocation Fund.
That amounts to about 25 to 50 million dollars investment for Fairholme in the common shares.
Have other hedge invested the same or similar, more or less? That is not definitively known at this moment, at least to this writer's knowledge.
7. Fannie Mae getting Relisted soon. How soon is soon? It is a possiblity. Unlike, many OTC and Pink sheet stocks, the GSEs report to the SEC in the same manner they did before the voluntary delisting. The application is not an issue and the GSEs qualify for listing on the NYSE except, perhaps, for the minimum pps/time trading duration rules. Being in the conservatorship is not a legal bar to uplisting. The GSEs stocks were traded on the NYSE before and after entering into conservatorship. The FHFA Director could decide tomorrow to uplist the stocks if he so chose to do so in his responsiblity to conserve the GSEs. However, no one in this forum knows the definitive answer to this question in the positive or negative.
Also , none of the many bills submitted in the House or Senate with a 0% or 1% chance of enactment as they sit in committee have any bearing or weight on the GSEs while they are in the conservatorship by an independent federal agency. The President, Secretary of the US Treasury, the House, Senate have no unilateral or direct control over the FHFA. The FHFA is relatively independent of outside control of other government agencies and branches. The GSEs are under the sole authority of the conservatorship, by the FHFA Director Ed DeMarco and under the influence of the US Treasury only in regard to the PSPAs. See HERA 2008. - http://www.govtrack.us/congress/bills/110/hr3221
8. Fannie Mae is super cheap. Valuation calculations for the GSEs are open to anyone to make. One only needs to know the formulas and to plug in data from annual and quarterly Form 10-K and 10-Q.
You can use what I use (see below) or do your own DD calculation, the best way to go.
Book value has been calculated in several different ways and formulas have been clearly given. See DD sticky, for example.
However, to evaluate the GSEs as companies, is unlike doing so for other companies. The GSEs are in conservatorship and as a result there are restrictions imposed upon them that would not be there if released and functioning as GSEs or companies. So the valuation must be done as if they are released minus the US Treasury imposed restrictions found in the PSPAs. - http://www.fhfa.gov/Default.aspx?Page=364
By such restriction free calculations we can see that the GSEs are undervalued and that their market price is too low and that the current pps is a bargain when compared what it could be when free from the PSPAs.
This is the bet those going long are making. If the GSEs are not in the conservatorship, what would their value be? Their valuation would be enormous. Therefore, there is great concern about their future in the conservatorship and as entities post-conservatorship or not....
To attempt to evaluate them as situated in the conservatorship under the terms of the PSPA and in comparison to companies not in conservatorship is a foolish and meaningless exercise for obvious reasons. One should not be confused by those people in media who mix things up and present a very twisted view because of sheer stupidty, ignorance about the complexity of the arrangements or political and financial agendas to obtain benefits and power over the GSEs.
HOW TO EVALUATE A COMPANY STOCK FOR VALUE AND GROWTH
What is a stock really worth as opposed to the value at which it is being traded in the marketplace?
Qualitative Research • Management – who comprises the team? Are they competent and experienced to lead a company to profits and new developments? • What Does the Company Do and How Does it Makes Money. • Where and How Does the Company Fit in with the Industry/Competition - market share • Branding and Brand Name
Quantitative Research Use SEC Form 10-Q - 10-K available on Edgar and most financial web sites having the stock symbol. Do not use info from web sites it is often outdated and incorrect. Use original documents - Form 10-Q, Form 10-K. Examine the following on the Balance Sheet, and Income Statement and Statement of Cash Flows.
STOCK VALUE INDICATORS
Last Price – current price of stock
Shares Outstanding – type and number of shares outstanding in float
Market Capitalization - 100 million or greater. Market capitalization is the total value of a company in the stock market. Smaller companies may not be financially stable at lower levels of capitalization.
Formula Market Capitalization = Total Outstanding Shares x Current Market Price Per Share.
Total Stockholder's Equity - must be positive
Net Income - must be positive
Total Revenue (Sales) – must be positive
Book Value of Common and/or Preferred Shares - must be positive and best if it closely matches the market price per share. If market price is higher than the stock is overvalued and if lower than it is undervalued
Formulas: Common Stock Book Value Per Share = Total Shareholder's Equity - Preferred Equity ? Average Outstanding Shares of Common Stock
Preferred Stock Book Value Per Share = Total Stockholder's Equity - Common Stock Equity Average Outstanding Shares of Preferred Stock
Price To Book Value (P/B Ratio) - values are best at .6 to 1.5. Ideal is stock price equals book value per share or a value of 1. This indicates that stock is accurately priced in the market and is neither undervalued or overvalued. It is better to be undervalued than over valued since that would be a possible price increase from the current price.
Formula Price to Book Value = Market Price Book Value Per Share ( common vs. preferred).
Earnings Per Share (EPS) - must be positive - Tells us what is the profitability of the company.
Formula Earnings Per Share (EPS) = Net Income - Preferred Dividends Distributed Weighted Average Outstanding Shares.
Cash EPS - must be positive, the higher the number the better the profitability. More accurate than EPS.
Formula Cash EPS = Operating Cash Flow Average Outstanding or Diluted Shares.
Price to Earnings Ratio (P/E Ratio) - must be positive and the lower the number the better. 5 and under is good and under 15 a must. A P/E of 5 means that for every 5 dollars paid for the share, 1 dollar in profit will be returned in one year or a 20% return with a $5 dollar investments. A P/E of 25 indicates that 1 dollar in profit will be returned one year with a $25 dollar investment or 04% return and so on. Look for these in lowest 10% of all equities.
Formula Price to Earnings Ratio (P/E) = Current Price of Stock EPS (Cash EPS)
Sales Per Share- A ratio that computes the total revenue earned per share over a 12-month period. The sales-per-share ratio is used to evaluate a company's business activities in comparison to share price. The higher the ratio, the more active the company is trying to make money.
Formula Sales Per Share = Total Revenue/Sales Weighted Average of Shares Outstanding
Price to Sales (P/S Ratio) - A ratio for valuing a stock relative to its own past performance, other companies or the market itself.
Formula Price to Sales (P/S Ratio) = Stock's Current Price Sales Per Share
Earnings Growth - value should be at least 7% per annum compounded over the last 10 years.
PEG Ratio - values should be less than one. The ratio indicates how cheap the stock is while taking into account its earnings growth. If the company's PEG ratio is less than one, it is considered to be undervalued.
Formula PEG Ratio = P/E ratio Projected year-over-year earnings growth rate (%).
COMPANY SOLVENCY INDICATORS
Total Debt/Equity (Recent yr) (%) - Ideal values should be 0.0 to < 1. This value indicates that the amount of debt is less than or equal to the equity in the company. It takes less debt financing to bring equity into the company. A higher ratio >1 indicates the company is using debt to make money and the higher it is the more insolvent the company is.
Formula D/E Ratio = Current Liabilities Total Stockholder's Equity
Current Ratio - measures whether or not a company has enough resources to pay its bills over the next 12 months. Values greater than 1.4 are desired since it means that for every dollar in liabilities there is 1 dollar and .40 in assets that can be converted to pay for them within a year.
Formula Current ratio = Current assets Current liabilities
Total Debt Ratio - ratio showing how much debt a company has and how solvent it is. Values should be 1 or less. A low value 0 to 1 means that for every dollar or cents in liabilities, there is a dollar in assets that can be converted to pay for them within a year. Values above 1 indicate there is more debt than assets available to pay for them.
Formula Total Debt Ratio = Total debt Total assets
Profit margin - tells us how much net profit in a percentage or cents is generated for every dollar in sales. This number must be positive and the higher the better of course.
Formula Profit margin = Net income Sales
Return on Equity - measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Value should be 7 or greater.
Formula Return on Common Equity (ROCE) = Annual Net Income - Preferred Dividends Common Equity (Total Stockholder's Equity - Preferred Equity)
COMPANY SHARING PROFITS INDICATOR
Dividend % Yield - Companies that provides dividends are sharing profits with stockholders and is an extra source of income on a quarterly or other period basis. 2% to 7% and higher are percentages to find.
Formula Dividend % Yield = Annual Dividends Paid Current Stock Price
