Financial crisis isn't over until Fannie drops more than 85% from all time highs. The financial problems of this credit cycle are a MUCH bigger bubble than the technology bubble, and yet FNM has outperformed vs. Cisco's stock back in the 1999 to 2003 collapse. I give the advantage to Cisco, and not by a small margin.
Cisco in 2000 had:
1. Better business model, with > 60% gross margins and little worthy competition. The tech bubble may have increased sales to a peak, but no threat to the business from competitors. Fannie Mae has Bank of America (Countrywide) and a whole host of nimble and innnovative competitors looking to steal its crown.
2. A cash rich balance sheet. Cisco was blessed with tons of cash and no debt. This is quite a contrast to FNM which has leverage on top of leverage. Any small micro-event can destroy FNM's book value and put them far into a hole that no company could escape.
3. No threats from regulators. Cisco is left to happily maintain it's "monopoly" on networking gear after the tech bubble. No one blamed them for anything other than selling what people wanted. Whereas FNM has been under scrutiny since BEFORE the embarrassing meltdown. The gov't hates FNM already, and with houses going below 50% of peak 2005-2007 values, how is it that FNM mgt will escape the public guillotine? So even if we are past the bottom, FNM is going to hit regulatory strife in good times, and in bad times be a bankruptcy candidate. The gov't might have saved the mortgage insurers, but not before they become low single-digit stocks.
$29.005 (05/19/08)
