Federal National Mortgage Association (FNMA), or “Fannie Mae”, provides a source of financing for residential mortgages in the United States. The company is a government-sponsored, stockholder-owned corporation chartered by Congress to provide liquidity and stability to the United States housing market. I see three bullish supports for the stock as a speculative play, says Nicholas Vardy, editor of The Global Guru.
1. Strong Value Proposition: Fannie Mae has an exceptional ValueRank of 97, making it one of the most attractive stocks on valuation metrics. Its Price-to-Book Value and Price-to-Sales ratios are notably low (0.02 each), indicating significant undervaluation compared to peers in the financial sector.
2. High Momentum with Substantial Price Gains: Fannie Mae’s MomentumRank is a high 99, reflecting strong recent price performance. One-year relative strength is up by 151%, and shorter-term gains are nearly 100% over one and three months. This momentum suggests investor confidence and rising interest in the stock.
3. Consistent Revenue Growth: The Company has shown stable revenue growth, with a 9% revenue increase for the nine months ended September 2024. This growth underscores Fannie Mae's ability to generate consistent income amid changing market conditions, solidifying its role in the US housing finance market.
The regulatory backdrop here is crucial. Fannie Mae's share price jumped sharply following Trump's win. This surge reflects the market's anticipation of potential policy changes under a Trump Administration, particularly regarding Fannie Mae's conservatorship.
Trump is far more likely to end FNMA's conservatorship than a Harris Administration would have been. There are no guarantees that Trump will end the conservatorship, as he did not do so in his last term. That said, with his focus on cutting government bureaucracy, such an exit seems more likely in his second term.
Equally importantly: It is still unclear how much of the value of any exit from conservatorship would accrue to equity owners, as the US Treasury owns a substantial amount of preferred stock. So, think of any position you take in FNMA as a call option – highly volatile with terrific potential upside, but with the benefit of the option not expiring or experiencing time decay.