Why FMCC & FNMA Stock Are The Next AMD

- February 9, 2017

NVIDIA Corporation (NASDAQ:NVDA) has soared 350% over the last year. While nice, that’s nothing compared to Advanced Micro Devices‘ (NASDAQ:AMD) near 600% return over the same span. In this post, I will be looking at five different companies that have the potential to become the next AMD stock, and will provide ways to tell if a stock has the potential to make such a move. While there are five companies I identify in this post, one that I am quite optimistic about is Federal National Mortgage Association (Fannie Mae) (OTCMKTS:FNMA), or FNMA stock.

In looking back at AMD stock under $2/share, the deep value could not have been more apparent. Yet, it was continuously bashed while AMD stock longs had to remain resilient, for many years before their outlook was ultimately proved correct. After all, most of the catalysts that caused AMD stock’s big rally, have been in play for years.

With that said, multi-bagger stocks like AMD and NVDA stock typically share certain characteristics. First and foremost, a stock has to be beaten down badly in order to produce such large gains, and so quickly. It usually happens after years of being oversold, overlooked, and under-appreciated.

Besides being overlooked, stocks that end up tripling in value over the course of 12 months are almost universally bet against. A catalyst ends up sending it higher.

Just look at Sprint Corp (NYSE:S). Sprint stock started 2016 under $3 after losing about 2/3 of its value since 2014. Many were betting on bankruptcy until its parent company Softbank created two financing vehicles for off balance sheet debt and made a big change in leadership. These acted as two catalysts to catapult Sprint stock higher.

The same applies to Rite Aid Corporation (NYSE:RAD). When I bought RAD stock at $1.23, Rite Aid was coming off its first profitable quarter in damn-near a decade. Countless people were betting on bankruptcy with RAD stock at $1/share. However, I saw its first profitable quarter and the patent cliff as a major catalyst, and therefore bought RAD stock at $1.23 to capitalize on a gain of 600%. Much like Sprint stock, a catalyst (the patent cliff and profitability) set RAD stock free.

If we look throughout the market, there are countless examples of investors betting against quality companies, being overly pessimistic for far too long, which then sparks big gains. I always say, stocks tend to fall much lower than they should when times are bad, and go much higher than they should when times are good. I have two great examples, both of which I exploited.

Finding the next AMD stock

The first was Netflix, Inc (NASDAQ:NFLX) in 2011. If you recall, the company split its DVD and streaming businesses, investors started to worry about margins, and NFLX stock lost 75% of its value. However, the change in strategy and margin concerns is not the reason that NFLX stock fell 75%. Instead, it was panic selling. Investors were selling to limit their losses, and it created a domino effect. Like I said, stocks go lower than they should when times are bad.

As BNL Members can see, I actually bought NFLX stock at $25/share (post-split). That may look genius today, but I heard quite a bit of shit for it back in 2011. And I must admit, it was very difficult to hold NFLX stock as it fell below $10. There were more than a few times when I questioned my own analysis. However, I stayed true to that analysis, realizing the stock was not a reflection of the business, and ended up with triple digit gains.

The second example came in 2012 with Facebook Inc (NASDAQ:FB). The only difference with FB stock was that I learned from my bad timing with NFLX stock. I’ll never forget reading an article from Barron’s in September of 2012 entitled “Facebook Is Worth $15”. I immediately wrote a response calling Barron’s crazy, bought FB stock at $22.50 and sold it for $80/share.

All things considered, it is time to look ahead at five stocks that could realistically become the next AMD stock. This is a BNL Report and besides FNMA stock, the following content is exclusively for BNL Members. If you are a BNL Member, read on. If not, there are a few takeaways that are important to identify opportunities like AMD stock before massive moves, along with a few rules.

  1. The untapped value in potential AMD stocks is apparent to the “open eye”.
  2. It usually takes a catalyst to unlock that value, such as a change in management, an acquisition, big name investor, etc.
  3. It can take several months, even quarters for the stock to start trending higher, and there’s no guarantee it won’t go lower at first.
  4. A good candidate is usually a big business, a stable company like AMD, Rite Aid, NVIDIA, Facebook, Netflix, Sprint, etc.
  5. Everyone will be betting against it, at first.

Before continuing, I can not stress enough that regardless of a stock’s apparent upside, those listed above, these could all be dead money for a long time, and chances are I am wrong about one or two. That’s why it is best to buy all five, or five you think meet the five characteristics of a future multi-bagger detailed above. And don’t use 100% of your portfolio to invest in such companies. Refer to “this article” about how to create a million dollars by retirement to understand how many stocks a person should own based on their net worth.

Without further ado, let’s use those five takeaways to explain why the following five stocks might very well be the next AMD stock.

Next AMD: FNMA stock?

There has been essentially no chance for Federal National Mortgage Association (Fannie Mae) (OTCMKTS:FNMA) to create any real shareholder value, up until now. It is pathetic and damn-near criminal that the U.S. government, or treasury, bailed out banks, automakers, and the mortgage giants Fannie Mae and Freddie Mac during the recession, yet refuses to set the latter free from government conservatorship. Why? Because GSEs like Fannie Mae have returned more than $255 billion to the treasury by the government sweeping their net profits despite only spending $187 billion to bail them out.

Common sense suggests there must be a free market solution and a plan to get GSEs out of government conservatorship, but why would the Treasury want that when it can essentially drain Fannie Mae and Freddie Mac of all their capital? Prior to last year, that’s exactly why the likes of FNMA stock traded well under $2/share and was nothing more than a speculative bet that private investors would one day win in court to free the company from government conservatorship.

Nonetheless, that’s “why” FNMA stock and FMCC stock stayed beaten down for so long. However, the catalyst that has caused FNMA stock to more than double over the last six months is President Donald Trump’s selection of Steven Mnuchin as Treasury Secretary. Mnuchin co-owned the former IndyMac, OneWest Bank, and has said on many occasions that freeing Fannie and Freddie from government conservatorship is a top priority. Mnuchin now has the role and goals of someone who can force real change, minus the speculative bets of a court hearing. In fact, I will go as far to say that it is going to happen, just a matter of when not if.

When Mnuchin succeeds, and the GSEs are freed, that $255 billion they have paid to the government since the recession will be cash flow and profits for their businesses. In a $14 trillion mortgage market where Fannie Mae, Freddie Mac, and Ginnie Mae account for about all owned or guaranteed mortgages, FNMA stock and FMCC stock could very well reach $30/share once government conservatorship is wiped out. Like I said, it’s just a matter of when, but with long-term upside like that, who cares how long it takes? Just buy, hold on, and check back in five years.

Final thought on FNMA: Mnuchin is a businessman. He’s not a politician. One thing we have seen in Trump’s first month is a willingness to move fast, unlike a politician. Expect the same from Mnuchin.

4 (more) stocks that could be the next AMD

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