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Fannie Mae Is Surging Like Crazy, And Big Hedge Funders Are Making A Killing
Steven Perlberg / Business Insider data via Bloomberg
It looks like shares of a penny stock that would make even Jordan Belfort blush are on fire, rocketing 40% in the last five days and 1500% over the last year, nearing that big $5 mark.
Only one problem: The stock is Fannie Mae, the government-controlled mortgage giant.
And because Fannie was put under the government umbrella during the housing crash, the company has to pay its profits to the U.S. Treasury, not shareholders.
If you're just in it for the trade, though, you actually could have made a nice buck. Plenty of investors have — from individuals to hedge funds — as CNBC reported last May.
But what about Fannie's future? Shareholders don't particularly love its current form, where all of the dividends go to the government.
They could hope for Congress to make a change, but good luck there.
Or they could hope a court eventually rules that shareholders should get the profits. That's the most bullish case.
One big-time investor betting on Fannie (and its government-run sibling Freddie Mac) is Persing Square's Bill Ackman, who bought nearly 10% of the common stock of both. Motley Fool's Alexander MacLennan explains:
Ackman expects even more upside from the common stock, and noted in an investment conference that he expects the GSE shares to increase in value 10 times during the next several years. He also noted his expectation that the Supreme Court would side with the shareholders, and that shares could be worth 10 to 15 times current levels after the decision is issued.
Of course, when major players like Bill Ackman start talking about megareturns, the stock gets a bump.
As the backdrop to all of this, Fannie Mae's dividend payments to the Treasury keep looking more and more impressive, intensifying shareholders' fantasy that it could eventually take form in a non-government-sponsored way.
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