(FORTUNE Magazine) – Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.

Thus saith the prophet Warren Buffett, chairman of Berkshire Hathaway and stock picker supreme. In his opinion, Federal Home Loan Mortgage Corp., otherwise known as Freddie Mac, is just such an opportunity. A quasi-public corporation like its older cousin Fannie Mae (the Federal National Mortgage Association), it earns an impressive 23% return on equity and sells for less than eight times estimated 1988 earnings. ''Freddie Mac is a triple dip,'' says Buffett. ''You've got a low price/earnings ratio on a company with a terrific record. You've got growing earnings. And you have a stock that is bound to become much better known to equity investors.'' Berkshire Hathaway's savings and loan subsidiary owns or has contracted to buy about $108 million of Freddie Mac stock -- the maximum allowed. Lots of Buffett's friends and associates have invested too -- including Louis Simpson, vice chairman of Geico, and William Ruane, chairman of the Sequoia Fund. Should the ordinary investor consider joining the Buffett gang? In a word, yes. Freddie Mac helps make the American dream of owning a house a reality. Chartered by Congress in 1970, the company buys residential mortgages from lenders, guarantees the mortgages against default, packages them as securities, and sells them to investors, including many S&Ls. From 1970 through 1987, the market for conventional residential mortgages grew at a compound annual rate of more than 13% and never at less than 5.5% a year. Not bad, but what makes the business outstanding is the paucity of competition. Fannie Mae is the only other major player; the chief difference between them is that Freddie resells virtually all its mortgages, while Fannie holds onto a substantial amount of them. Together, Freddie and Fannie control 90% of the market. Says Buffett: ''It's the next best thing to a monopoly.'' The future of the Freddie-Fannie family duopoly looks encouraging. The market could expand for years to come. So far only 33% of conventional residential mortgages are securitized, leaving plenty of room for growth. Moreover, savings institutions will soon have another powerful incentive to buy more mortgage-backed securities. In 1990 savings banks and S&Ls holding ordinary mortgages will be required to maintain bigger reserves against loan losses than if they owned a diversified portfolio of securitized mortgages. Of the two, Freddie may be the better bet. Over the past decade, its return on equity has averaged more than twice Fannie's. Because Freddie's managers buy only top-quality mortgages, Freddie's delinquency rate for conventional fixed-rate single-family mortgages is a mere 0.4% of its $230 billion portfolio. With holdings of similar size, Fannie has 1.1% delinquencies. President Leland Brendsel and the other Freddie Mac managers minimize their exposure to interest rate spikes, which hurt mortgage bankers by raising their cost of money while lowering the price of mortgages in the secondary market. Brendsel keeps only $15 billion worth of mortgages on the balance sheet, vs. Fannie Mae's $102 billion. Freddie's lower exposure to rising interest rates may be one reason Berkshire Hathaway sold shares in Fannie not long ago and bought more of Freddie. Says Berkshire Hathaway vice chairman Charles Munger: ''I can't think of a more tangible compliment to the stock than to buy every damn share we are allowed to.'' By law, no one may own more than 4% of Freddie Mac's outstanding shares. Shares in Freddie Mac have a few peculiarities. First, the stock is properly called ''participating preferred.'' Preferred shareholders normally get fixed dividend payments, but Freddie's get the first $10 million a year in dividends and are guaranteed 90% of any further distributions. The second wrinkle for the would-be investor is that Freddie trades over the counter on a ''when- issued'' basis until January 3, when it will be listed on the New York Stock Exchange. Heretofore, Federal Home Loan Bank Board rules allowed only its member institutions to own the participating preferred because they provided Freddie's seed money. The board decided to end that restriction because the resulting illiquidity kept the stock price far below what it would command in a free market. The change should raise some $2 billion for capital- starved S& Ls. Freddie's when-issued stock began trading in October. Most institutional investors have yet to discover its charms or have not bought it because their rules preclude owning when-issued shares; mutual funds and insurance companies rarely hold them. The pros may seem to rule the equity markets, but with Freddie Macs, for once the edge goes to the individual investor. And there's a bonus. Because you cannot take delivery of when-issued shares right away, you can put up 30% now and pay the rest later. In this case, you don't have to settle the bill until January 10.

CHART: NOT AVAILABLE CREDIT: SOURCE: ANDERSON & STRUDWICK CAPTION: NO CAPTION