Is Fannie Mae Stock an Overlooked Opportunity?

Fannie Mae US3135861090

After a period of consolidation, the U.S. mortgage giant Fannie Mae is once again attracting market attention. Despite recent share price weakness, current valuation metrics and backing from prominent investors suggest a potential inflection point may be approaching. Could the current lull following a recent correction present a strategic entry opportunity for investors?

A fundamental analysis released on January 5 reveals a notable divergence between short-term price action and underlying valuation. While the stock has declined approximately 9.5% over a 90-day period, its long-term upward trajectory remains firmly intact, boasting a one-year return exceeding 150%.

The price-to-sales (P/S) ratio of 2.2 is particularly striking. Compared to the broader financial sector, this metric indicates a potential undervaluation. Given that Fannie Mae operates profitably but retains earnings within a restrictive capital structure due to its government conservatorship, a sales-based valuation often provides a clearer picture than traditional price-to-earnings (P/E) analysis.

Political Catalysts and Institutional Support

The investment thesis receives significant backing from high-profile market participants. Shortly before the new year, star investor Bill Ackman reaffirmed his view that Fannie Mae and Freddie Mac represent a "top idea for 2026." This conviction is largely predicated on the expectation that a potential Trump administration would initiate concrete steps this year to end the 18-year-long federal conservatorship.

Furthermore, the Federal Housing Finance Agency's (FHFA) confirmation of the $88 billion credit purchase limits reinforces the company's central role in providing liquidity to the U.S. housing market. Proponents argue that a return to major public exchanges (re-listing) could unlock substantial shareholder value.

Navigating Risks and Key Technical Levels

Despite these positive indicators, risks persist. A hearing related to ongoing litigation scheduled for January 23 could introduce short-term volatility. From a chart perspective, defending the $11.00 support level is crucial. A sustained breakout above $11.50 would signal the end of the current consolidation phase and potentially pave the way toward the 52-week high of $13.75.

Investors are advised to monitor upcoming legal developments and any signals from the FHFA regarding capital retention in the coming weeks. Should plans for reprivatization under a new administration gain tangible momentum, the political discount currently reflected in the share price could gradually diminish.