The Hotties and the Notties

With foreclosures mounting, concern remains that the government-sponsored companies won't be able to absorb all of the losses from failing mortgages and defaults. That raises the possibility of making intervention by the federal government -- in the form of either a massive cash infusion or an outright takeover -- a necessity. But both Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) pulled death-defying acts last week to become two of the better performing stocks, rising 37% and 60%, respectively.

Freddie Mac said early this week it would sell $4 billion in two-year and five-year debt this week. CAPS members like JAVEROA think the need for a recapitalization has been greatly diminished.

As there seems not to be that much of a need for recapitalization, I believe this stock could be back in the high teens in a few months. In fact, the market has responded well to the Co.'s call for fresh capital. Expect a lot of gyration as any good/bad news has double digit effects on the daily PPS, but no way do I see FRE going back to even half their PPS level of last year in the next five years.

The two mortgage giants were among the best performing stocks last week being a part of mortgage finance which was far and away the best performer industry. Below are the top five industries followed by the five worst.

Source: Bigcharts.com

In fact looking at the two lists, it was a week of opposites. Some of the worst performing industries over the past year were its best performers while the year's previous "hotties" turned cold.

When you're hot, you're hot
Driving industry performance, of course, are the underlying stocks that comprise it. While Fannie and Freddie helped make mortgage finance a winner last week, it was American International Group (NYSE:AIG) jumping over 8% that helped push the insurance industry ahead, though most probably got a boost at the end from the fact that Hurricane Gustav was going to wreck far less havoc than originally thought. CAPS member docmase sees the headwinds AIG is facing as a temporary barrier and notes there's a difference between being early and being wrong.

These issues are short-term. Long-term investors can look to AIG's record of innovation in the insurance industry, new markets (China), and its brand strength and size. This is a large moat insurance company that will survive this downturn and come back stronger when the markets turn bullish.

When you're not, you're not
Evergreen Energy (NYSE:EEE) and James River Coal (NASDAQ:JRCC) were two leading coal stocks down last week as recent correlation between coal stock prices and oil prices helped knock the sector back. Yet with 27% of the world's coal deposits here in the U.S. and the price of coal being much cheaper than other forms of energy, it's unlikely that coal will remain a four-letter word for long. CAPS member socalsy, however, isn't so sure and felt last month that the run-up James River has enjoyed has not been warranted.

Why did this stock spike recently? Speculative bubble is my guess. People wanted to put their dollars into energy stocks and commodities. It's hard to put a valuation on a cash sieve.

Hot or not?
Many industries can run hot or cold for some time, while cyclical ones can enjoy time in the sun followed by periods behind the clouds. You can start your own research on the stocks that comprise these industries on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Then let us know ... are they hot or not?