Freddie Mac (NASDAQ:FMCC) And Fannie Mae (NASDAQ:FNMA)

Freddie Mac (NASDAQ:FMCC) and Fannie Mae (NASDAQ:FNMA) were trading in pennies for each share a couple of years back. The stocks of both these companies, after seeing a few years of success, have dropped again. Each of them is trading at $2/ share. Despite this setback, some industry players are still of the opinion that the mortgage giants can make a comeback. Perhaps this is the reason why they are putting in so much money and energy into the companies. One such player is Bill Ackman of Pershing Square.

Bil Ackman is of the view that both the companies can trade at well above $20 if the pending suits are decided favorable. But then again, there is a big ‘if’ involved here. Let’s analyze the situation and see if the stocks can go up in the coming months.

The pending suits were filed by the shareholders of the companies when they found out that the treasury altered the profit distribution as soon as the agencies turned profitable. All the profits of both these companies are given to the Treasury Department of U.S. in the forms of dividends, which means that the company would not be able to pay anything to its stockholders unless the profit distribution is changed.

The stockholders were of the view that they shared some of the profits, for it was their money too that saved these companies at times of financial crises. They bought these shares when the stocks were trading in pennies and there was no surety as to whether the companies would turn profitable.

What is interesting to note here is the fact that what Freddie and Fannie have returned to the Treasury in form of dividends is much higher than any amount that they ever received during their financial crises. The department has received $225 billion in forms of dividends whereas the amount of bailouts given to these companies was $188 billion.

The District Judge dismissed the suit of shareholders a few months back, saying that the Treasury could claim all of the profits of Fannie and Freddie in lieu of the Housing and Economy Recovery Act. It was after that ruling that the shares of both the companies started tumbling down.

It is worth mentioning here that the lawsuits that were dismissed were not very high profiled. The latest suit of Ackman will generate much hype. Ackman wants to withdraw his case from that District Court which dismissed the suits of other shareholders. Let’s see if Ackman makes it possible or not. Chances are that the suit of Ackman will also be dismissed by the District Judge. If that happens, the stocks of both the companies will go down even further.

Coming to the current stock prices of Freddie Mac (NASDAQ:FMCC), the company, during the last trading session of December 29, 2014, started its stocks at a price of $2.11 and closed at a price of $2.09. The situation is the same with Fannie (NASDAQ: FNMA)