Penny stocks usually have connotations to high risk and high reward. By definition, penny stocks are equities that trade below $5 per share. However, you should know that not all penny stocks are just start-up companies. There are many different companies that are technically penny stocks based on price but have businesses well established within large industries.
We’ve seen a lot this year with regard to these cheap stocks. Even the US President has helped boost attention on stocks like this. One of his tweets has sent a particular companies stock north of 800% this year alone. This just goes to show the power getting into the right penny stocks. One of the things that have been a hot topic on Twitter has been rates and the housing market.
It just so happens that two of the most popular housing names carry with it the association to the penny stock definition. So as the markets keep rattling investors’ cages, these to stocks have actually begun to aggressively head higher this week. But does that make them penny stocks to buy now? Or should you wait on these for a little?
Penny Stocks To Buy Or Avoid: Fannie Mae (FNMA) & Freddie Mac (FMCC)
These were two of the penny stocks discussed earlier this month. Fannie Mae (FNMA Stock Report) has traded sideways since then but recently it has caught a significant jolt of momentum. The same is true for Freddie Mac (FMCC Stock Report). This week two big events came up that has helped boost attention on FNMA and FMCC stock.
First, Fannie Mae named former FDIC chair, Sheila Bair to its board. The significance of this is that Bair brings with her a wealth of experience that has helped shape banking-policy. She’s been a TIME Magazine “Time 100” most influential people and has topped Wall Street Journal’s 50 Women To Watch list in 2008. But what has boosted excitement most in this penny stock has been the timing of the likely completion of the Housing-Finance overhaul.
It’s been more than 10 years since the government took control of mortgage finance firms to “save them” from utter collapse. However, the new plan, if approved would release both Fannie Mae and Freddie Mac to private shareholder ownership. Obviously, the scary part is that the firms could once again return to their former models and carry out business as it were over a decade ago.
What’s The Purpose Of Fannie Mae & Freddie Mac?
The firms don’t actually make loans. Rather, they buy them from banks and other lenders. The firms then put them into securities that get sold to investors and provide a guarantee upon default (except when the housing bubble collapsed). If you’re new to this story, let’s give you a quick cliff notes version.
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During the financial crisis, these organizations took on too much risk. Though it has nothing to do with them being penny stocks per se, it does put them into a risk category. That’s based on the previous history. The government seized control of the companies in 2008 and agreed to put in enough to support roughly $5 TRILLION in debt securities issued by the companies.
Will These Penny Stocks Head Higher?
This latest plan is to return the two back to private hands. But as part of the plan, there would be a Treasury backstop in place. But this hasn’t come without pushback. Senate Banking Committee Senator Sherrod Brown has issues with this plan. The concern stems from possible risks that could arise by giving up control.
“Failing to listen to these important voices does a disservice to communities and puts our housing market and taxpayers at risk”
Sen. Sherrod Brown, D-OH
Nonetheless, Wall Street appears optimistic. Anyone who lived through the financial crisis period knows the impact that another breakdown can have. This is one of the remaining fossils left from that time still needing to be addressed. But as the Treasury report was submitted to the White House, the markets took this as a high sign the administration could be moving forward with making big changes to these companies.
We’ll see what happens next. Right now, Both FNMA stock and FMCC have enjoyed 2 consecutive days of upward trading momentum and price movement. A lot will be riding on the outcome of these reports so stay tuned as the story develops.
