Fortune 500's top stock: Freddie Mac

Fortune 500's top stock: Freddie Mac

That's not a misprint. The mortgage buyer -- now run by the government -- is the best performer in the year after Lehman's collapse. But it still trades for under $2.


NEW YORK (Fortune) -- With apologies to the Beatles, the list of the best-performing Fortune 500 stocks in the year after the collapse of Lehman Brothers reads like a stroll down Penny Lane.

Penny stocks -- those that trade for less than $5 apiece -- are here, there and everywhere.

The top returning Fortune 500 stock over the past year is, ironically enough, Freddie Mac (FRE, Fortune 500). The irony lies in the fact that the government's seizure last September of the mortgage purchaser and its big sister Fannie Mae (FNM, Fortune 500) kicked off the most turbulent month in the financial markets since the Great Depression.

Taking over the companies didn't just tip Fannie and Freddie shares into free fall. It also sent shock waves through the financial system, as dozens of banks and insurance companies were left with big losses on preferred shares of Fannie and Freddie they had viewed as safe.

When Lehman failed a week later, Fannie and Freddie shares had a head start in the race to the bottom that many other giant financial firms, from AIG (AIG, Fortune 500) to Wachovia and Washington Mutual, would soon join.

Since then, shares of Freddie are up 367%. Fannie Mae was No. 3, returning 167% over the year ended Sept. 15, 2009.

Yet even after those gains -- much of the increase coming during the manic cheap-stock rallies this summer -- shares of Freddie were trading recently for only $1.87 each and those of Fannie were fetching just $1.60. Given the tens of billions of dollars of federal aid the companies have received, many analysts doubt the shares will hold even that value for long.

Though Fannie and Freddie are the most prominent penny stocks on the list, they aren't the only ones. Shares in the eighth-best performer, drug store chain Rite Aid (RAD, Fortune 500), surged 82% over the past year -- to $1.82 each. The debt-laden Camp Hill, Pa., company posted a $2.9 billion loss for the fiscal year ended in April and is struggling to reduce a massive debt load.

The top stocks on the Fortune 500 list aren't all lottery tickets, as some refer to the low-priced shares of companies with poor prospects. But, owing to the depth of the economic meltdown last fall, almost all the top performers have spent some time trading in the single digits.

Take Oshkosh (OSK, Fortune 500), the military truck maker that was the No. 2 Fortune 500 performer over the past year with a 171% gain. It traded recently at $31.47 and fetched as much as $60 a share in 2007, following a big Army order.

But shares dropped as low as $3.85 last fall, as the economy went into free fall.

The only stock among the top 10 performers in the Fortune 500 to have spent the entire year above $10 a share was World Fuel Services (INT, Fortune 500). The Doral, Fla.-based provider of nautical and aviation fuel was the No. 6 gainer last year, rising 101% to a recent $50.

Obviously, though, it wasn't all fun and games in low-price stock land last year. Three of the worst-performing Fortune 500 stocks -- not counting those that were delisted or filed for Chapter 11 bankruptcy protection, such as General Motors, cable company Charter Communications and numerous auto parts suppliers -- were AIG, Citigroup (C, Fortune 500) and CIT (CIT, Fortune 500).

AIG, the insurer that was taken over by the government as it teetered on the brink of insolvency the day after Lehman's failure, dropped 59% over the past year, adjusted for a 1-for-20 reverse stock split the company did in June to retain its New York Stock Exchange listing. It was the sixth-worst performer in the Fortune 500 among companies still listed on a major exchange.

Citi, the big bank that is the biggest recipient of federal aid via capital infusions and loan guarantees, was the fourth-worst performer with a 73% decline. This despite the fact that the stock has more than quadrupled since March, when it hit a multidecade low below a dollar amid fears a government takeover was on the way.

And CIT, the troubled small business lender that this summer pledged all its assets to get its hands on a $3 billion emergency loan, was down 81%. That made it the second-worst performer on the Fortune 500, after Crosstex Energy (XTXI, Fortune 500), the Dallas-based pipeline company that posted an 84% decline.

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