Freddie's Rally Presents Chance to Cash In

Editor's note: Our new "On the Brink" series will provide daily insight into the financial firms facing capital shortfalls and the growing pressure from short sellers in the market.

The time seems right for Freddie Mac (FRE Quote - Cramer on FRE - Stock Picks) to raise the minimum $5.5 billion in capital that its regulator requires, but the window of opportunity may close quickly if the company doesn't act soon.

The past week has brought a dramatic shift in sentiment about the viability of Freddie Mac and its fellow government-sponsored entity Fannie Mae (FNM Quote - Cramer on FNM - Stock Picks) as analysts asserted that the mortgage giants have enough capital to wade through the housing and credit muck at least until next year. The stocks responded accordingly, with Fannie up about 50% at $7.55 and Freddie up 85% at around $5.20 this week alone.

But the shift also highlights the reality of a volatile market in which the GSEs' stocks have traded from lows in the $3 range to highs above $65 over the past year -- with fluctuations likely exacerbated by an uptick in short-selling activity.

Fannie and Freddie shares have recently fluctuated with rumors and speculation over whether or not a government bailout was imminent -- a development that would likely wipe out shareholders. Now that those fears have abated, it might be a perfect opportunity for Freddie to fulfill the commitment it made to the Office of Federal Housing Enterprise Oversight and raise some capital.

"Strike while the iron is hot," says Celent Senior Analyst Walter O'Haire. "Put it this way: If they're going to raise the money and it's just a question of when, given the volatility in the markets, with big price swings and a kind of a yo-yo sentiment, why not shore up when you have an opportunity?"

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