Bill Ackman built a net worth of $9.3 billion by spotting promising opportunities. The hedge fund manager doesn't usually reveal the opportunities he likes to the public. However, he recently made an exception.
In a lengthy social media post on Dec. 30, 2024, Ackman said, "As we look forward [to] 2025, one investment in our portfolio stands out for large asymmetric upside versus downside so I thought I would share it." The billionaire investor thinks this stock could skyrocket roughly 500% by early 2026. So why does Wall Street expect it to plunge?
Ackman noted in his post on X (formerly known as Twitter) that his hedge fund has owned Federal National Mortgage Association (OTC: FNMA) (commonly known as Fannie Mae) for more than 10 years. However, he acknowledged that the performance of the stock has "not been great."
Although Fannie Mae wasn't a winner throughout much of the time Ackman has owned the stock, it's been a much different story in recent months. Since the U.S. elections on Nov. 6, 2024, the share price of the government-sponsored enterprise (GSE) has quadrupled.
The reason for Fannie Mae's surge is the same as why Ackman likes the stock's prospects so much. There's considerable speculation that the Trump administration will privatize both Fannie Mae and another GSE, Federal Home Loan Mortage Corp. (OTC: FMCC) (commonly known as Freddie Mac).
Ackman envisioned a scenario where the federal conservatorship of Fannie Mae would end. He projected that an initial public offering (IPO) would be possible by the fourth quarter of 2026, with a value of around $34 per share. That's roughly 6x (or 500%) higher than Fannie Mae's current share price.
Considering Fannie Mae's huge run-up since November, it appears that many investors are almost as bullish about Fannie Mae as Ackman. However, Wall Street analysts aren't in that group.
Financial markets data and infrastructure provider LSEG surveyed two analysts in January who cover Fannie Mae. One rated the stock as an underperform while the other recommended selling. The average analysts' price target for Fannie Mae reflects an expectation that the stock will plunge around 56%.
Why are these analysts so pessimistic about Fannie Mae? Keefe, Bruyette & Woods (KBW), a unit of Stifel Financial, foresees a significant risk that the anticipated privatization of the GSEs won't happen, according to reports.
Granted, the New York-based investment bank isn't as negative about Fannie Mae as others. KBW set a price target of $4 for the stock, which is around 29% below the current share price.
Story Continues
Fannie Mae doesn't look like a great stock to buy if privatization is off the table. The GSE's earnings fell nearly 14% year over year in its most recent quarter. As we've already seen, the stock has performed dismally without the near-term prospects of privatization.
But Ackman's bullish take on the stock is fully warranted if the federal conservatorship of Fannie Mae ends. The billionaire hedge fund manager is optimistic this will happen, too. In his X post, Ackman said: "Trump likes big deals and this would be the biggest deal in history. I am confident he will get it done." Based on the low price targets and negative ratings, though, Wall Street obviously isn't confident that Fannie Mae will be privatized.
So is Fannie Mae stock a buy? Ackman cautioned in his social media post, "There remains a high degree of uncertainty about the ultimate outcome so you should limit your exposure to what you can afford to lose if you choose to invest." I think his warning is appropriate.
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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 This Stock Could Skyrocket 500%. Why Does Wall Street Expect It to Plunge? was originally published by The Motley Fool
