Michael Burry’s Surprising Bet Ignites Fannie Mae Shares

Fannie Mae shares concluded the trading week with remarkable momentum, advancing 4.18% on Friday to close at $10.22. This surge was triggered by a dramatic strategic shift from "Big Short" investor Michael Burry, who has added the mortgage giant to his exclusive portfolio of stock picks, further fueling speculation about potential privatization.

Despite delivering an impressive 223.42% return over the past twelve months, fundamental analysis reveals conflicting perspectives on Fannie Mae's true worth.

The Bull Case: Research firm Simply Wall St notes that Fannie Mae trades at a price-to-sales multiple of approximately 2x, significantly below the industry average of 4x. With annual revenues reaching $28.47 billion and an estimated fair value multiple of 6.7x, the current valuation appears attractive to optimistic investors.

The Bear Perspective: Discounted cash flow models present a contrasting view, suggesting a fair value of only about $2.00 per share. This analysis indicates the current $10.22 price incorporates a substantial "privatization premium" that may not be justified by underlying financials.

Burry's Endorsement Fuels Optimism

The primary catalyst behind Friday's price jump was the disclosure that hedge fund manager Michael Burry—famous for accurately predicting the 2008 financial crisis—has identified Fannie Mae as one of his top investment opportunities. Alongside three other companies (Lululemon, Molina Healthcare, and Shift4 Payments), Burry classifies the stock as an undervalued value opportunity.

Should investors sell immediately? Or is it worth buying Fannie Mae?

This development follows an already bullish week for the government-sponsored enterprise. Wedbush analysts upgraded their rating from 'Underperform' to 'Outperform' while dramatically raising their price target by 1,050%. This substantial revision reflects growing market conviction that political changes could facilitate the privatization of the mortgage giants.

Ackman's Influence Amplifies Speculative Interest

The current rally directly connects to the privatization campaign being advanced by major hedge funds. Bill Ackman's Pershing Square Holdings continues to benefit from its longstanding positions in both Fannie Mae and Freddie Mac. Ackman recently proposed a comprehensive $300 to $400 billion recapitalization plan that would enable a structured privatization process rather than what he terms a "rushed" public offering.

This speculative enthusiasm emerges against a backdrop of stabilizing mortgage rates. The 30-year fixed-rate mortgage currently hovers near 6.00%, with forecasts anticipating similar levels through 2026.

Extreme Volatility Persists

Fannie Mae's 52-week trading range of $2.07 to $15.99 underscores the highly speculative nature of this investment. As the new trading week begins, market participants are watching closely to determine whether the "Burry effect" can maintain momentum above the psychologically important $10 threshold.

The significant disparity between the discounted cash flow valuation ($2.00) and current market price ($10.22) highlights substantial risks. Any regulatory setback or political opposition could trigger severe price corrections, reminding investors that despite recent gains, Fannie Mae remains a high-stakes proposition.