Bill Miller has increased his stake in Freddie (FRE) and now owns 12.2% of the company. Besides Bill Miller, other smart managers such as Richard Pzena, Charles Brandes, David Dreman and others are long on FRE.
On the other hand, there are smart people like Bill Ackman, Whitney Tilson and others that short FRE.
Being an amateur investor myself, it is scary to see very smart people on different side of the bet. My knowledge is too shallow to analyze the complexities of FRE's portfolio and the severity of the housing slump.
However, I have been thinking...
If Miller, Pzena and Dreman were right, the earning power would be $3-$5 per share 2 to 3 years out. Using a PE of 10, FRE would be worth $30 to $50. Let's say $30. At its current price of $4, that is a 7.5-fold increase.
If Ackman and Whitney were right, FRE would worth 0.
Assuming 50% chance of 7.5-fold increase and 50% chance of going to 0, the expected value = $15 per share.
With such a high positive expected value of $15, this seems like a potential good bet?
What are readers thoughts on the above? Shoot me an email.
Disclosure: None
