Freddie’s Not Dead

Apr 26th, 2010 – Comment

From a risk management perspective I would say the best play would be the ride from $2.50 to $5.00 if it gets there.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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freddiemac

 

Dear Lou

I wonder if Freddie Mac is a good buy for a long term investment?

Vincent

 

Hi Vincent,

This one really has me scratching my head. After the huge bailout that  Freddie Mac (FRE NYSE) received and the continuing issues in the U.S. housing market the question of it being a good buy for the long term isn’t jumping out at me.

I guess the main reason I am not seeing the opportunity in FRE is that it is currently under U.S. government conservatorship which has to limit its prospects over the short to mid term.

FRE

The three year chart tells the tale of a government sponsored enterprise that got burned buying questionable subprime mortgages and packaging them into mortgage bonds that were rated AAA but as was revealed were not worth the paper they were printed on.

The stock has had a great run from the March 2009 lows and has rewarded investors who had an appetite for risk. FRE has been range bound with resistance at $1.66 and support at $1.15 and has cycled in this channel twice since December of 2009. Trading for a 39% return twice in 6 months isn’t a bad chase.

 

fre2

The fast stochastic on the  six month chart signalled the move from $1.25 in April to $1.65. If the stock can break above $1.65 it can run to $2.50. From there if it can break above $2.50 it can run to $5.00. The stock has also had good support along its 200 day moving average. There have been tests of support but no outright collapse.

FRE has provided trading opportunities for those investors who are not risk averse but I wouldn’t say its a candidate for a buy and hold strategy. If you like the opportunity offered by Freddie Mac then put it on your watch list for attractive entry points. From a risk management perspective I would say the best play would be the ride from $2.50 to $5.00 if it gets there.

 

Happy Capitalism!

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