This Week's Biggest Movers

A lot can happen in a week.

For any measurable unit of time -- days, weeks, months, or whatever -- there are winners and losers in the market. A big movement in a stock price can indicate that something has materially changed within a company to radically alter its desirability as an investment.

A sizable movement in the price of a stock is an alarm. It’s like smelling smoke or hearing a scream or a cheer. Upon further investigation, it might turn out to be nothing -- but it could be a major event.

The purpose of this weekly column is to decipher the reason for the alarm set off by the largest stock-price movers of the week, and to report the findings from further investigation.

Here are this week’s biggest movers.

Source: Yahoo! Finance as of Aug. 28.

Fannie and Freddie
Weeks of speculation about a government takeover that could render the shares worthless sent shares of both Fannie and Freddie below $5. But the companies’ shares surged this week. Analysts at some of the major investment banks, including Goldman Sachs (NYSE:GS) and Merrill Lynch (NYSE:MER), opined that the GSEs (government-sponsored entities) have sufficient capital to survive for at least the next several quarters and avoid a bailout. Also, Fannie Mae announced a shakeup in upper management.

Although a government takeover is still possible, it no longer seems imminent. However, Fannie and Freddie are still an absolute mess. They will likely need to raise more capital than they are worth in total market cap, and in doing so, they will have to pay higher interest on debt issued and dilute existing shares.

Shares of the GSEs skyrocketed because the news suggested that the investment landscape may have changed -- from a bet on the very survival of the GSEs to a long-term bet on a housing-market recovery. Last week’s news has raised the possibility that the GSEs could wind up actually being a profitable long-term contrarian play. The possibility barely seemed to exist until recently.

MBIA and Ambac
The bond insurers had a huge week after MBIA announced that it had taken over the insurance of almost $200 billion in municipal bonds from FGIC. The deal included huge up-front premiums that MBIA can use to help its capital position and generate profits. The stocks have both been hammered this past year because of subprime exposure and subsequent pressure on the credit ratings. This week’s news indicates the companies may weather the remainder of the crisis better than previously thought.

Highly rated CAPS player muirmm had this to say about MBIA a few weeks ago: 

A one-star stock today, I believe MBI is being unfairly punished for being part of the financial industry. It does not have the liquidity problem faced by banks. Banks, with long term loans made on shorter-term borrowing, find themselves in an urgent and often deadly pinch when their creditors demand their money back in a hurry. MBIA is in the opposite situation: its liabilities are long-term, while it has continuing short-term income (or will, as soon as the ratings agencies recognize that it deserves to have its AAA rating re[s]tored). It will have many years to pay for any problems arising from the current crisis, and will easily be able to pay all of the claims out of its revenues. It will not be destroyed by the financial crisis; rather, it will emerge strong and with less competition than previously.

Talbots
It’s no secret that the economy is sputtering and most retailers are taking it on the chin. The proper question for most retailers is not whether they are in the midst of a storm, but rather, how they are riding it out. Talbots gave a positive answer to this question when it announced earnings this week. The company said that costs for store closings will be much less than expected, and it changed its full-year projections to a profit. But retail seems like treacherous territory in this market. I’d be careful.

Final thoughts
Sometimes a weekly movement in the stock price indicates that something has permanently changed a company’s future. But usually, the story behind a price movement is just a piece of a larger puzzle. Stay tuned for next week’s biggest movers.

For more research on these companies, check out the free CAPS site -- it includes insights from more than 115,000 investors.