Billionaire Bill Ackman is no longer the activist investor he once was. Yet he still doesn't mind trying to influence corporate executives to take steps to boost their companies' stock prices while making money for his hedge fund.
Ackman has recently taken activist investing to a higher level. He hopes and expects President-elect Donald Trump to turn two stocks in his Pershing Square Capital Management portfolio into big winners. Both stocks have gained more than 6 times in the past 12 months.
Federal National Mortgage Association (OTC: FNMA) (commonly known as Fannie Mae) and Federal Home Loan Mortgage Corporation (OTC: FMCC) (commonly known as Freddie Mac) is a government-sponsored enterprise (GSE). Creating the GSEs requires an act of Congress. They are privately held but provide financial services that benefit the public.
Fannie Mae was federally chartered in 1938 to finance housing. It does not provide loans directly to borrowers. Instead, the GSEs guarantee residential mortgage-backed securities issued by other lenders, and then issue and guarantee mortgage-backed securities for investors to purchase.
Freddie Mac is the younger sibling of Fannie Mae. It was established in 1970 as part of the Emergency Home Financing Act passed by Congress and signed into law by then-President Richard Nixon. Like Fannie Mae, Freddie Mac does not make loans directly to borrowers. However, it purchases loans from approved lenders to enable them to make more loans. The GSEs then package the mortgages into securities and sell them to investors.
Fannie Mae went public on the New York Stock Exchange in 1968, and Freddie Mac followed suit in 1989. However, both companies eventually delisted from the New York Stock Exchange and switched to over-the-counter trading. The two GSEs came under federal regulation in 2008.
From the beginning of 2020 to the end of 2023, the stocks of Fannie Mae and Freddie Mac performed dismally, with both falling by more than 65%. However, things are very different now. Shares of Fannie Mae are up more than 540% in the past 12 months. Freddie Mac's stock price rose even more, soaring nearly 600%. Most of these gains were made after the November 6, 2024, presidential election.
What's the biggest catalyst? Many investors believe federal oversight of the two government-backed companies will end during a second Trump administration. Ackerman is one of them.
On December 30, 2024, the billionaire hedge fund manager posted on X (formerly Twitter) that there is "a solid path" to federal regulation of Fannie Mae and Freddie Mac within the next two years Finish. Ackman noted that “during Trump’s first term, Secretary Mnuchin (former Treasury Secretary) took some steps to achieve this outcome, but he ran out of time.” He expected “Trump and His team will get the job done in the second administration."
In his post, Ackman laid out a scenario for how Fannie Mae and Freddie Mac could escape federal regulation. He expects the two GSEs to IPO in 2026 at a price of about $34 per share. That means Fannie Mae is trading at nearly 5.5 times earnings and Freddie Mac is trading at nearly 6 times earnings.
During his real estate career, Trump became known for his penchant for making big deals. Ackman knew this, posting, "Trump loves big deals and this will be the biggest in history. I have no doubt he will get it done."
However, any big deal that ends federal regulation of Fannie Mae and Freddie Mac could spell big trouble. The two GSEs owe the U.S. government $190 billion as of the end of 2024, according to the Congressional Budget Office.
Ackman said in his social media post that the removal of Fannie Mae and Freddie Mac from federal regulation "should generate over $300 billion in additional profits for the federal government," in addition to being removed from the U.S. government's balance sheet. About $8 trillion in liabilities.
There are quite a few details that need to be worked out for Ackerman's scenario to happen. If it does, though, these two high-flying stocks could soar even higher.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman thinks Donald Trump could turn these two stocks into big winners - with both up more than 6x in the last 12 months Originally Posted by Posted by The Motley Fool