Editor’s note: This article was first published in June 2014; the FNMA share price, Bill Ackman’s per-share estimate and stake, and Fannie Mae’s over-the-counter trading under federal conservatorship are as of that time and may have changed since. This June 2014 purchase of a high-risk over-the-counter stock is kept as a historical record and is not investment advice. The two charts it refers to could not be recovered.
I have just bought a small block of shares in the Federal National Mortgage Association, better known as Fannie Mae (OTCBB: FNMA), at an average price of $4.09 a share.
This coincides with my unexpected sale of my Deoleo shares. Apart from the obvious bullish chart, the reason for investing in this company is none other than the recommendation and expectations that Bill Ackman has for it.
At an investment conference, Bill Ackman said that Fannie Mae’s shares could reach a price of between $23 and $47 a share as the US mortgage and credit market stabilises. Even if Ackman’s expectations are only half met, as an investor I would be delighted. Remember that Ackman owns roughly 10% of the company’s shares, and that investing in this company is basically investing in mortgages.
In this first chart we can see where the company was trading before the mortgage crisis.
Fannie Mae was on the verge of extinction. In fact, it trades as a high-risk stock on OTC Markets. In other words, it has been a high-risk penny stock and still has a BB rating. But we can also see that it is starting to take off. It is still early days, but the big news that would send this company’s share price soaring would be leaving OTC Markets and going back to being listed on the Wall Street indexes.
In this other chart we can see the evolution and the astronomical take-off that has driven the share price from just a few cents ($0.27) to the current price, tracing a clear rising channel.
Without forgetting that this company carries a high risk, for investors with a more aggressive profile and a long-term mindset we would advise buying, while being ready to average down if technical complications arise.
Featured image: User:AgnosticPreachersKid, CC BY-SA 3.0, via Wikimedia Commons.
