It's a mystery why shares of Fannie Mae (NYSE: FNM ) and Freddie Mac (NYSE: FRE ) spiked on Monday. The two were up 42% and 19%, respectively, on impressively large volume.
What gives? The financial positions of both companies are disasters, and both are drowning in government loans. In the most recent quarter, Fannie racked up a monstrous $15 billion loss, thanks to $18 billion in credit loss provisions.
Some market watchers have suggested that the big gains and sizable volume were driven by retail investors trading through sites like E*TRADE (Nasdaq: ETFC ) . Could the swarming individual investors see something that the institutional big shots missed?
More than 1,100 members of The Motley Fool's CAPS community have weighed in with their thoughts on Fannie Mae. They seem to disagree with Monday's buying frenzy, believing instead that the stock is better avoided. Fannie's stock currently carries a two-star rating out of a possible five, a signal that there are greener pastures.
Of course, some CAPS members haven't avoided Fannie Mae altogether -- they've bet against it. The current score leader for Fannie Mae is CAPS member MarketBottom, who has rung up nearly 230 points by rating Fannie's stock an underperformer on five occasions.
MarketBottom has managed to record an impressive stock-picking accuracy of 74%, but a collection of calls that have gone very wrong have kept this member in the bottom half of CAPS' rankings. However, Fannie Mae hasn't been this player's only great call. Here's a look at a few other prescient picks:
|
Company
|
Date
Picked
|
Date Ended
|
Call
|
Points
|
CAPS Rating
(Out of 5)
|
|
Bank of America (NYSE: BAC )
|
March 9
|
March 16
|
Outperform
|
95
|
***
|
|
Delta Air Lines
|
July 15, 2008
|
July 23, 2008
|
Outperform
|
73
|
*
|
|
Ambac Financial
|
Sept. 19, 2008
|
Sept. 29, 2008
|
Underperform
|
59
|
*
|
Data from CAPS.
So what is this investor looking at these days? Here are a few of the most recent calls on CAPS:
|
Company
|
Date Picked
|
Call
|
CAPS Rating
(Out of 5)
|
|
Coca-Cola (NYSE: KO )
|
July 29
|
Outperform
|
****
|
|
McDonald's (NYSE: MCD )
|
July 23
|
Outperform
|
****
|
|
Chevron (NYSE: CVX )
|
July 13
|
Outperform
|
****
|
Data from CAPS.
While not all of these picks may pan out, they could be a good place to start further research. I decided to take a closer look at Motley Fool Inside Value favorite Coca-Cola.
The real question
When it comes to Coca-Cola, the question for investors is neither whether this is an attractive company, nor whether the core Coke product is a great and enduring product. Instead, the question boils down to what price you have to pay for Coke shares.
Back in 2000, Coke shares traded hands for darn near 100 times the company's trailing earnings. After dropping significantly, the stock caught fire again in 2004, peaking in early 2008 with a P/E multiple of 28 before diving with the rest of the market.
Today, we find Coke's stock carrying a notably lower P/E of just more than 18. Sure, we could long for early March, when the stock could have been bought for less than 80% of today's price, but for a company of Coke's caliber, today's price still looks pretty attractive.
It's also notable that with a lower share price comes a higher dividend yield. Coke's current 3.3% yield not only tops what its stock has paid out in recent years, but is also nearly the yield you get from a 10-year Treasury bond today.
CAPS members weigh in
While Coke has a very strong following in the CAPS community, there have been enough members sticking their thumbs down (many on past valuation concerns) to leave the stock one star short of a perfect rating.
Despite the smattering of pessimism, Coke's stock shows 4,645 outperform ratings in CAPS vs. just 244 underperforms. Among those thousands of bulls is baidewei, who gave the stock an outperform rating in early April, saying:
Coke is a company I can understand. They make a product that people (myself included) want to purchase. They earn money and they pay a dividend. We could get into details about free cash flow and payout ratios...yeah :) I want to jump on down to MY bottom line: "Is it a company that is strong, understandable, and pays a dividend?" For me, KO fulfills the requirements.
But here's the important question: What's your take? Will Coke continue its historically solid performance? Get in the action by clicking over to the totally free CAPS, where more than 135,000 stock pickers are chipping in to find the market's best stocks.
Related Foolishness:
RSS Headlines
Fool UK