Fannie Mae owns or insures over 3 TRILLION dollars in mortgages. Along with Freddie Mac they are involved in 80-90 percent of all the mortgages in the country right now.
Fannie Mae has a market cap right now of 1.3 billion. Their shares closed at 1.09 cent today. They just earned a profit of 10.2 billion dollars in ONE quarter. Even if you were to take half that amount and multiply by 4x quarters, that puts their earning capacity at 20 billion dollars per year. If you value them at their historical multiple of 15 that puts them at a 300 billion dollar market cap. With 1.2 billion outstanding shares that makes their potential share price 250 dollars per share.
Of course there is more to the story than that and at the present moment they are stuck in conservatorship. The government is being ambiguous about the terms of that agreement. There are 4 major lawsuits at the Court of Claims by high profile law firms suing on behalf of hedge funds and mutual funds that own major stakes in the companies. Those lawsuits have a very high chance of being settled.
This is the real deal. A geniuine once-in-a-lifetime opportunity. But you have to have heart in this situation and hold out through all the time and pain that is going to happen when you own shares in these companies. The upswings and downswings are going to provide all different types of temptation to sell in situations that appear to be good. The reality is that they will be realitively good but not at the real intrinsic value of the investment.
For example you might buy shares at 1.09 and then in three weeks they are trading at 3 dollars and you'll think you have done well because you made three times your money and did well compared to other investors or whatever other ways you determine when someone does well.
Well if the next day a court decision happens or a decision is made that has major positive implications for the value of the stock, your 3x profit will look horrible when the stock jumps to 30 dollars a share in ONE DAY.
Because the potential upside is so gigantic in this situation and if you really want to make life changing money, you have to resist all temptation to try to offload your stock as if you are getting over by taking the quick profits. If this is potentially worth 250 dollars a share and the right news comes out you'll have all the time in the world at that point to sell your stock because the uncertainty in the market will be gone.
The outcome will be known and then there will be a ramp up period as various other add-on events happen that further contribute to widespread investment in the stock. Things like reinstating dividends for example.
What I am trying to say is that the conventional wisdom of buy and hold is many times bad advice. But in this situation it's the best advice in the world. If you own this you are looking for maximum price discovery in the market before selling it at its real value.
This is also a situation that looks like you could lose everything but in reality have an almost zero chance of losing everything for the exact same reason that the stock price is so cheap in the first place. The politics are making it seem like they are going to take arbitrary actions against the company but the Senators and others are just huffing and puffing for political reasons as rhetoric. They have even gone as far as introducing legislation that would be unconstitutional if ever signed into law.
They delisted the companies so that the large institutional investors can't invest in the shares anymore. They suspended dividends on the preferred stock and common stock. They have even acted like the money the companies are paying back is not actually being paid back and that they are going to somehow keep it all.
All the while they know that there is no way they can keep all the money legally. But in this NSA wiretapping type environment people are led to believe that they will find a way to take all the money. There are a hundred reasons why it just can't happen.
That is why this is the best investment in the world and it's simply because Congress has an approval rating of under 20 percent.
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