This premium buy-side research is behind a paywall and it is worth it. This report is a long-form, data driven detailed analysis of Prudential Financial and why it offers a compelling value vs. its market peers.

Report includes:

• Overview and investment thesis

• Deep dive into Prudential’s business

• Industry analysis and Prudential’s competitive positioning

• Analysis of key financial metrics vs. peers (ROE, ABV, AUM, EPS, Dividends, Buybacks

• 4 Valuation Models Used: SOTP, DDM, Residual Income, P/ABV Comps

• Investment thesis and justification for price target

  DealFlow: Buy, Sell, Grow is a reader-supported publication. To access premium buy-side research, become a paid subscriber

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On March 19, 2026, the Federal Reserve, FDIC, and OCC took a major step toward reshaping U.S. banking regulation. In a coordinated set of proposals, the agencies outlined revisions to the U.S. Standardized Approach and an expanded risk-based approach for larger banks. The changes are explicitly designed to be more risk-sensitive and less punitive than the 2023 Basel III endgame proposal, particularly for traditional lending activities like residential mortgages and mortgage servicing. Overall, large banks could see capital requirements fall by approximately 4.8 percent, with midsize institutions benefiting from a 5.2 percent reduction and smaller banks up to 7.8 percent.

The driving rationale, as articulated by Fed officials and echoed in coverage including The Wall Street Journal, is to reverse the migration of mortgage origination, holding, and servicing out of the regulated banking system into nonbanks and GSEs. By making on-balance-sheet mortgage activity more capital-efficient, regulators hope to broaden participation, improve liquidity, and support housing access without compromising safety.

This article takes a deep dive into these proposals, with a sharp focus on the mortgage-specific provisions. It then compares them to the far more conservative Enterprise Regulatory Capital Framework that governs Fannie Mae and Freddie Mac. Finally, it explores the central hypothetical:

• What if FHFA rewrote the ERCF to mirror the new bank rules exactly?

• How much capital would each GSE actually need?

• How does that compare to their current GAAP net worth?

• And, assuming the senior preferred stock held by Treasury is deemed repaid through administrative or legislative action, how quickly could the Enterprises exit the seventeen-year-old conservatorship?

All figures are drawn from the GSEs’ official disclosures, the agencies’ March 19 proposals, and contemporaneous analyses. While no such alignment has been proposed or announced, the potential for it is a golden opportunity for FHFA (Fannie and Freddie’s regulator) to finally get the ball moving on returning these two financial giants to public markets.

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This was the second major announcement about Fannie Mae and Freddie Mac in the last two weeks, and investors should take note of the change in tone. In the first announcement, President Trump said “I am giving very serious consideration to brining Fannie Mae and Freddie Mac public…and will be making a decision in the near future”. Now note the above post: “I am working on taking these amazing companies public”. In other words - President Trump’s decision has been made and the conservatorships will end on his watch (i.e. by the end of 2028). I didn’t expect my previous analysis to get validated so quickly, but I’ll take it.

Now the major questions become (1) What needs to happen to achieve President Trump’s objectives? and (2) How much are Fannie Mae and Freddie Mac worth?

I’ll address these questions in reverse order, with this article focusing on updating my price targets. I build on my prior content and cover valuation methodology (including a review of Pershing Square’s methodology), shareholder dilution and my price targets for Fannie Mae and Freddie Mac. The details are behind a paywall (paid subscribers can continue reading). Suffice to say, the shares are up ~600% in the last 12 months and I think they still have massive upside potential. Free subscribers should consider upgrading to paid for this one - the potential upside on these stocks is huge. It might be the single best investing decision you’ll make.

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Yet these companies have been in under government conservatorship for 17 years (a consequence of the Great Financial Crisis in 2007-2009). As a result, they trade Over-The-Counter, lost among the wilderness of penny stocks. President Trump came to office in 2016 with the aim of ending their government conservatorship and restoring them to private market glory. But he ran short of time as the companies had virtually no capital on their books, and needed years to build this up. Their penny stock status remained. In 2020, the Biden administration had no interest in dealing with the future of these firms. The upshot: Fannie Mae and Freddie Mac continued to build capital…lots of it…and almost nobody was paying attention. I wrote my first buy-side research article on these firms back in January. These were deep dive reports covering the detailed histories, financials and valuations of the companies. I asserted that as they continued to build capital, the probability of exiting conservatorship increased and so to did the anticipated share values.

Trump returned to office with these companies in a much stronger position than in his first term. Then, last week, President Trump posted that he was seriously thinking of ending the conservatorships. This single message sent the shares up >50% in one day !

With this single post, President Trump has massively increased the odds that the conservatorships will end before he leaves office in 2028.

So I think this is a great time to revisit my previous deep dive on Fannie Mae ($FNMA) and Freddie Mac ($FMCC), including my valuation models and price targets. I will do this in two parts. The first part (this post) will cover why I think both companies can accumulate enough capital via retained earnings alone to exit conservatorship. This is a critical achievement, as it means additional shareholder dilution (in excess of the outstanding government warrants) is less likely. In Part 2, I will review my valuation model and price targets and comment on the price target from Pershing Square (Bill Ackman’s hedge fund). The details are behind a paywall (paid subscribers can continue reading). Suffice to say, the shares are up ~600% in the last 12 months and I think they still have massive upside potential. Free subscribers should consider upgrading to paid for this one - the potential upside on these stocks is huge. It might be the single best investing decision you’ll make.

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One month ago I released a presentation / podcast on Applied Materials (trading symbol $AMAT). They are one of the largest suppliers of tools and equipment needed to manufacture semiconductors. Its a cyclical business and I had argued that we were nearing (but not at) the bottom of a cycle and that long-term investors could benefit tremendously during the next bull run.

In fact, I had a pretty optimistic price target of $292-$330 per share (90% to 110% upside) to be hit in the next 36 months [see slide below]

Although I did mention emerging risks from tariffs and geopolitics, I largely ignored these in my valuation as I thought most of the risks were manageable. Export controls had already been put in place and had worked their …

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In other words, investors with a long-term horizon can find very high quality businesses in a secular growth industry trading at reasonable or attractive prices. My previous presentation covered Applied Materials $AMAT. KLA Corp ($KLAC) is a similar company, but one that specializes in a niche of “inspection and metrology” equipment. These are the tools that inspect and detect defects during the production process and are mission-critical for ensuring semiconductor production efficiency. By some estimates, KLA has ~50% market share in this specialized space and enjoys entrenched customer relationships and very high…

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What does KLA Corp do?

In brief, KLA Corp occupies a highly specialized niche in the semiconductor manufacturing equipment space. Their products are mission-critical for inspection and metrology (i.e. the tools required to check and measure things at key stages of manufacturing).

They are divided into 3 business segments:

1. Semiconductor Process Control (~80-85% of revenue): consi…

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Applied Materials is a global leader in semiconductor equipment. In other words, they make the tools that make semiconductors. When you hear about companies like NVIDIA in the news, they contract out the manufacturing of their semiconductors to “contract manufacturers”. These companies use the tools supplied by Applied Materials to make the chips. This is a highly technical and complex engineering process, requiring AMAT to be embedded with chip manufacturers at each phase of the manufacturing process.

In other words, AMAT is very hard to replace and they are very good at what they do. By some estimates, they have ~40% of the total global installed base for semiconductor production equipment (that comes with a very lucrative services business as well). Some quick figures:

• Q1 2025 revenue: $7.2 billion

• Gross Margins: 49%

• Operating Margins: 30.6%

Let that sink in for a moment. Here we have a US based B2B manufacturer of industrial tools – and they have operating margins over 30%. Clearly, they have pricing power and a technological edge that acts as a serious barrier to entry in their markets. Over the past decade, its stock has compounded at 21% annually, despite the recent pullback. Those are some serious returns.

And the company has never been as financially strong as today.

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Measuring Texas Pacific Land Corp’s Operating and Financial Health

Texas Pacific Land Corp. (TPL) has built its financial strength on a highly efficient business model, deriving income from royalties on its land without directly engaging in oil and gas production. This asset-light approach, with minimal capital expenditures, allows TPL to capture revenue at multiple stages of an oil and gas well's lifecycle. To evaluate TPL’s financial performance, we focus on key metrics tailored to its distinctive operations, such as royalty revenue growth, yield per acre, royalty coverage ratio, and free cash flow per share. These indicators illustrate not only the company’s historical success but also its ability to deliver long-term shareholder value.

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Recent reporting from Nikkei Asia has put Hong Kong Dollar peg squarely in the headlines – and potentially in question. While the peg's defenders cite substantial reserves and institutional resilience, the concerns raised about its long-term viability are getting much harder to ignore.

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A Shield or a Shackle?

The Hong Kong Monetary Authority (HKMA) asserts that the peg remains essential for stability, and with $420 billion in foreign reserves, it seems well-equipped to defend it. Although reserves have declined from their peak in 2021, they claim there is no immediate cause for panic.

Yet, as the Nikkei Asia reports, this drop has raised questions about how much longer Hong Kong can rely on these buffers to sustain its currency linkage. This has become especially true as Hong Kong authorities have begun publicly discussing the sensibility of linking to the USD versus the Chinese RMB. Their premise: Hong Kong’s economy is more closely tied to China and the recent divergence in USD and RMB currencies has hurt Hong Kong’s economic prospects. For example, they cite higher borrowing costs in Hong Kong versus mainland China and dampening retail activity in Hong Kong as residents travel across the border to shop in China instead.

The pressure is building

Two scenarios are quietly adding pressure (1) potential US sanctions on China could upend the Hong Kong monetary system; (2) a gradual integration and usage of the Chinese RMB in Hong Kong could erode the HKD.

Sanctions are a possibility, but the issue triggering those sanctions would have to be quite severe for the US to go after a major conduit for USD funding in China.

The second scenario is likely to happen eventually in preparation for discontinuing the HKD [See my previous article on the HKD peg]. But it is unlikely to happen “naturally”. Right now, Hong Kong residents have no incentive to use the Chinese RMB. In fact, its the opposite – they get more for their money when they shop in China. Improved transit links mean residents can be in Shenzhen in under 30 minutes where their HKD goes much further than the local currency. For those that can get paid in HKD, but incur living expenses in RMB, they are feeling a “wealth effect” of their relatively strong currency. I suspect this wealth effect is quite popular. The Chinese RMB will eventually become more prominent in Hong Kong – but by government mandate, not market sentiment.

But do residents even have to know which scenario they face or when it could come? The incentive to convert to USD and transfer it out of Hong Kong is increasing rapidly. In fact, Nikkei Asia interviewed a Hong Kong based portfolio manager doing precisely that.

A Hong Kong-based portfolio manager at a China state-owned bank said he has been converting local currency into U.S. dollars, and putting those in several banks including a U.S. one. The manager, who declined to be named, cited concerns over accessing dollars saved in a local bank if it is cut off from SWIFT, the dominant global payments system that is partly overseen by the Fed.

Hong Kong authorities should dread this. I suspect finance professionals and portfolio managers are already “hedging their bets” and that the race for the exits has slowly begun. Whether the trigger is concern over potential sanctions, HKMA policy shift or the eventual end of “one country, two systems” is irrelevant for those holding their wealth in HKD. I return to the question of my first article: Is a HKD currency crisis inevitable? The HKD may seem stable for now, but it seems confidence is eroding.

Texas Pacific Land Corp. ($TPL) stands as one of the most intriguing and unconventional success stories in American business. Tracing its origins back to the 19th century, TPL emerged from the ashes of the Texas and Pacific Railway’s bankruptcy, inheriting vast swathes of undeveloped land and mineral rights that nobody foresaw would become extraordinarily valuable. Over the decades, what began as an effort to liquidate land assets transformed into a thriving enterprise, capitalizing on the rich natural resources beneath its holdings.

The numbers alone highlight TPL’s remarkable ascent. In 2024, the company’s value skyrocketed by an astounding 185%. Over the past five years, it delivered a return of 435%, while its ten-year performance stands at an eye-popping 3,750%. These are growth figures more commonly associated with disruptive tech startups, not a century-old entity originally tasked with selling land to pay off creditors. Yet, TPL has defied expectations at every turn, proving itself a paragon of resilience and adaptability.

This report delves into the historical evolution of TPL, examining its journey from a relic of railroad history to a major player in land and mineral rights management. It provides an in-depth exploration of the company’s unique business model, financial performance, and long-term growth prospects. Whether you’re an investor or simply curious about one of America’s most fascinating corporate transformations, this analysis offers a comprehensive overview of TPL’s legacy and future potential.

The story begins with a bankrupt railroad…

The Texas and Pacific Railroad Company was chartered by federal act in 1871, with the Texas legislature granting permissions to consolidate several railroad companies and expand the rail network. Rail was the primary mode of transportation during a construction boom, facilitating commerce and population growth across the vast American West. The model of granting land to railroad companies for building infrastructure was a bold strategy aimed at accelerating development while offsetting costs. By the late 19th century, these grants were among the largest land giveaways in U.S. history, and the railroads became both transportation enterprises and some of the largest landholders in the nation.

However, the optimism was short-lived. In 1888, a series of natural disasters—including a devastating flood in Louisiana and crop failures from a Texas drought—pushed the Texas and Pacific Railroad into bankruptcy. During bankruptcy proceedings, the courts converted more than 3.5 million acres of the company’s land holdings into a new entity, the Texas Pacific Land Trust. Bondholders received shares in this trust, and its trustees were tasked with selling the land to repay debts. And so began one of the longest bankruptcy liquidations in American history. Interestingly, the trust persisted for decades, as demand for this remote and undeveloped land was very slow to materialize.

The slow pace of land sales, and general lack of interest in the land portfolio, frustrated the Texas Pacific Railway bondholders, now shareholders in the land trust. Their shares in the trust proved illiquid and hard to sell. But beneath the surface lay some value. At the time the trust was established in the late 19th century, mineral rights were not widely understood – and they came attached to the land rights [in contrast to today, where surface rights and mineral rights are commonly separated]. It seemed the shareholders, long waiting for an opportunity to cash-out, had finally caught a break. The Texas Oil Boom of the 1920’s (also known as “The Gusher Years”) converged with the stock market boom of the “roaring twenties”. There was significant public enthusiasm for new company listings, valuations were rich – and the mineral rights were considered a potential “hidden treasure” after oil was discovered on the land holdings. In 1927, nearly four decades after its creation and with much of the trust’s land still unsold, the shares began trading on the New York Stock Exchange. The land portfolio remained mostly barren and undeveloped, but the stock market mania allowed some long-term shareholders to find an attractive exit. [Note: the stock market crashed in 1929 – so investors that sold at, or just after, the IPO may have had very good timing]

The Texas Oil Boom ended with the Great Depression. But oil exploration and development took on new significance during and after World War II. In the 1950’s, the hunt for oil on TPL’s land was back in earnest. In 1954, TPL established the TXL Oil Corporation to capitalize on its mineral assets, formalizing its role in the oil industry. The trust slowly began to shift focus towards the value of its mineral assets. As before, this evolution moved very slowly. In the 1970s, the Arab Oil Embargo accelerated domestic production and significantly boosted TPL’s royalty income. In the 1980s (now almost a century after the original bankruptcy), TPL made a big strategic pivot: they would emphasize shareholder value, leveraging oil revenues to repurchase shares and reduce outstanding stock. The focus on land-sales, despite it still being the “official purpose” of the Trust, was being deprioritized (though they were still selling down land on a regular basis).

TPL remained a relatively boring, but stable, business until the 2000’s. A new technology: horizontal drilling promised to unlock vast oil resources in the Permian and Delaware Basins of the United States. TPL found itself sitting on the land and mineral rights for a big part of one of the world’s richest oil fields. The boom was on – and this one made the 1920’s “Gusher Years” look miniscule by comparison.

In 2021, TPL transformed from a Trust to a Corporation formally eliminating its mandate to liquidate its land holdings. Today, TPL’s market cap exceeds $32 billion. A hypothetical $1,000 invested in TPL in 1995 would be worth over $1 million today [January 2025]. What had started as a bankruptcy induced entity to dispose of distressed land transformed into a highly profitable corporation, owning 868,000 acres in one of the world’s richest oil fields.

A lucrative business

Texas Pacific Land Corp. (TPL) operates a unique business model that capitalizes on its vast land holdings in the Permian Basin without directly engaging in oil and gas production. This asset-light, high-margin model allows TPL to benefit from every phase of development on its land, from infrastructure construction to oil extraction and beyond. Its operations are organized into two primary business segments: Land and Resource Management and Water Services and Operations, each contributing to its strong financial performance and growth trajectory.

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A Simple, Lucrative Business Model

The business models of Fannie Mae and Freddie Mac are simple. They each operate two business categories: (1) Securitization and Guarantee Business and (2) Retained Portfolio business. The Securitization and Guarantee Business is by far the most important, as the Retained Portfolios have been effectively wound down and will be a negligible part of their earnings going forward.

Securitization and Guarantee Business

The companies acquire “qualified” mortgages from lenders, bundle them into pools of Mortgage-Backed Securities (MBS), and sell these securities to investors. They guarantee the timely payment of principal and interest on these securities by charging a “guarantee fee” (g-fee) to lenders for this service. Lenders pass on the fee to the homeowner. This fee has ranged from 50 to 60 basis points in recent years. It is embedded in the mortgage rate itself – making it largely unnoticed by homeowners.

The companies take on two main risks associate with this business line: Credit Risk and Pre-Payment Risk. Credit risk is the risk of a borrower defaulting on their mortgage. Pre-Payment Risk is the risk that borrowers refinance their mortgage (or otherwise pay off) their mortgage earlier than expected, thereby affecting the g-fee income stream.

To mitigate against Credit Risk, there are strict underwriting standards for mortgage eligibility. The g-fees are priced based on risk (i.e. they charge more for riskier mortgages, or to borrowers with lower credit scores). They also use g-fee income to build capital reserves to cover potential losses. In recent years, they have introduced a Credit Risk Transfer system by selling portions of risk to investors. To mitigate against Pre-Payment Risk, the companies structure MBS pools with callable or non-callable options that can manage pre-payment speeds. There are also complex hedging strategies to offset the financial impacts of pre-payments.

The g-fees charged are meant to provide capital to cover any potential losses arising from Credit or Pre-Payment Risk. Importantly, housing is one of the areas where extensive long-term data sets are available. Forecasting risk becomes relatively straightforward. Capital reserves are built to withstand shocks to the housing finance system that occur very infrequently [Note: Dodd-Frank Stress Tests are conducted annually to mimic another Financial Crisis and determine capital sufficiency. In recent years, both companies have passed easily]. The g-fee business has proved extremely resilient over time.

Retained Portfolio Business (“pre-2008”)

Both companies also maintain a “retained portfolio” where they acquire mortgages from lenders, but retain them instead of selling MBS to investors. Naturally, this comes with Interest Rate Risk as well as Credit Risk and Liquidity Risk. However, this business consists of mortgage pools on their books from before the 2008 Great Financial Crisis. Regulations introduced after 2008 prevent the companies from re-entering this space. The legacy pools of mortgages have largely run off their books by the time of this publication. Going forward, their contribution to either Fannie Mae or Freddie Mac’s income streams will be effectively negligible.

The business model has scaled with the size of the US housing and MBS markets, and has proven to be highly lucrative over time. The Retained Portfolio was the source of trouble for both companies during the Great Financial Crisis, not the Securitization and Guarantee Business. Going forward, they will only be in the Securitization and Guarantee Business.

Net income has averaged $17.4 billion and $9.3 billion for the last 5-years for Fannie Mae and Freddie Mac respectively. These enormous returns are very stable and could command a high valuation if/when their conservatorships end.

An investment thesis emerges

At time of writing, a new Trump administration is preparing to take office. There is considerable speculation about this new administration moving to end the conservatorships. There is also considerable uncertainty that needs to be recognized. The biggest question is what Treasury will do with their existing SPS obligation.

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Yet despite their staggering scale and influence, these publicly traded giants have languished in obscurity since the Great Financial Crisis in 2008. For over 15 years, they have been relegated to the “pink sheets”, trading over-the-counter (OTC) often for under $1/share. They still filed quarterly and annual reports with the SEC. But their earnings calls were almost perfunctory, often lasting roughly 20 minutes with no analyst participation allowed (no Q&A with the management team). For all but some avid investing nerds, these companies were forgotten – out of sight, out of mind.

The re-election of Don…

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