As the Dow Jones Industrial Average approaches 10,000 again, many issues that would have been passed off as toxic waste less than a year ago are now being passed along to investors as bargains, values and trading opportunities.Nowhere is that more evident than with Fannie Mae, the troubled mortgage-securities company that was a poster child for the market meltdown, going from big-time safe play to risky penny stock...
...That said, you'd have to possess the investment insight of broccoli not to recognize that Fannie Mae has horrible fundamentals and short-term prospects.......A healthy dose of high inflation would help Fannie Mae. The value of the collateral on their loans (houses) would rise, making the loans less toxic.
"Sure, the government owns the thing," said Gregg Brewer, executive director of research at Value Line. "Sure, the company's bleeding isn't likely to be over. Sure, the stock is probably worthless. But, so long as you aren't putting much money in, a flier on this wouldn't be the end of the world."
He added: "Clearly it is purely speculative and you could wind up with nothing, but, on the other hand, as the economy strengthens, people might just push the price higher without regard for the longer-term logic."
Brewer, however, characterized taking a flier as "more sport than investing," which is precisely why the average investor needs to stay away. While Fannie Mae stock has bounced, it's a trading play that -- no matter if it continues to climb -- is too treacherous to be a long-term investment for the average buyer.
