Stock Picks: RSH Up; FRE Down

Droids? At least one stock was still riding high on the original smartphone superstar Monday as RadioShack (RSH) proved you can be late to the iPhone party. Shares surged more than 13% on news that it will start selling Apple’s iPhone in limited numbers in November, and more broadly across the country in 2010.

The development prompted Credit Suisse analyst Gary Balter to raise his rating to Outperform from Neutral and to up his price target to $25 from $15. His upgrade was prompted by addition of the iPhone, in combination with other recent initiatives, including a partnership with Target to operate wireless kiosks – all while maintaining relatively easy near-term comparisons. “[The iPhone agreement] should prove to be a powerful driver of AT&T business through the RSH box,” Balter wrote in a note. The addition of the iPhone could add more than 25 cents to RadioShack’s earnings per share while T-Mobile and the Target Kiosk rollout could tack on an additional 30 to 35 cents a share, according to Balter.

Barclays is a little more tempered in its expectations, with a modest addition of 9 cents a share for 2010 from the iPhone. “Over the longer-term, the addition of the iPhone should enable RSH to benefit from the growing Apple ecosystem, where consumers are growing increasingly committed to its handsets due to the sunk costs from buying Apps,” wrote analyst Michael Lasser in a note.

Barclays brought its target up to $20 from $19, and Goldman Sachs nudged its target up to $21 from $19.

The bottom Line: Hold. “Questions remain over RSH’s longer term positioning, but the company is clearly making the necessary moves near term,” wrote Balter.

Freddie Mac (FRE) auctioned off $2 billion of bills on Monday, but weak demand did little to settle uncertainty after Friday’s earnings. Shares were down just four cents, or 3.3%, and, per usual, Freddie Mac and fellow mortgage giant Fannie Mae (FNM) saw robust trading volume.

Freddie Mac sold $1 billion of three-month bills, at a 0.08% rate, up from 0.066% on Nov. 2. But the bid-to-cover ratio – an indication of demand – slid to 4.12 from 4.53 at the earlier auction. The mortgage giant also sold $1 billion of six-month bills, at 0.178%, a slightly higher rate than earlier in the month, but demand slipped again.

Late Friday, after the market closed, Freddie reported a net loss of more than $6 billion and said it upped its provision for credit losses by 46% over last quarter.

“We believe that factors like high unemployment, excess inventory and rising foreclosures will continue to impede a full recovery for some time and put further downward pressure on house prices,” said CEO Charles Haldeman in a statement. While the mortgage giant is not in current need of more Treasury aid, Haldeman does anticipate further requests for funds “as this prolonged deterioration of market conditions continues to negatively impact our financial results.”

Elsewhere in the housing sector, stocks Toll Brothers (TOL), Hovnanian (HOV), DR Horton (DHI), and Pulte Homes (PHA) dipped into negative territory despite gains in the broader markets.

The bottom line: Hold. “Prolonged deterioration” doesn’t ring of optimism.