Long-Term Value in Freddie Mac

[Rich] Pzena, whose firm, Pzena Investment Management, recently went public, says the mortgage purchaser is still severely undervalued.

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Speaking at the annual Value Investing Congress in New York City, Pzena labeled Freddie "the single cheapest stock that I've come across in my career." This isn't because Pzena is bullish on the U.S. housing market (he's not), but because he says Freddie has been unfairly tarnished by the subprime brush that is has afflicted so many mortgage lenders.

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Freddie's shares (symbol FRE) traded at $65 as recently as August 22 and plunged to as low as $22.90 on November 26 before rebounding.

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Pzena says he considers three questions when analyzing businesses selling at low prices. Is it a good business? Are its problems temporary, rather than permanent? Is it rational to think that earnings will return to historical levels? With Freddie, he says the answer to each is yes.