Rocket Is Becoming the New Meme Stock. Move Over, GameStop.
March 03 2021 - 10:18AM
Dow Jones News
By Orla McCaffrey
The individual investors that powered GameStop Corp.'s meteoric
rise have a new target: Rocket Cos., the parent company of Quicken
Loans.
Shares of the mortgage lender surged 71% to $41.60 on Tuesday
and nearly 377 million shares traded hands, more than a 10-fold
increase from the previous day. Its trading was halted several
times Tuesday afternoon because of its volatility.
Like GameStop, Rocket is heavily shorted. As of Monday, 46% of
its shares available for trading were being shorted, according to
S3 Partners, a data-analytics firm. Retail investors on
WallStreetBets, the Reddit community that gave birth to GameStop's
rise, have been encouraging each other to buy the stock in recent
days and sharing evidence of their own massive gains.
Rocket has other upsides. The company recently announced it
would pay a one-time dividend of $1.11 per share later this month,
citing its "highly profitable and capital light business
model."
Rising mortgage rates are also boosting earning potential for
mortgage lenders just as the crucial spring home-selling season
kicks off. The average rate on the 30-year fixed-rate mortgage rose
to 2.97% recently, its highest level since August.
Detroit-based Rocket is the largest mortgage lender in the U.S.,
according to research firm Inside Mortgage Finance. Its $323
billion in home loans in 2020 easily surpassed the $221 billion
originated by its closest competitor, Wells Fargo & Co. Its
large size and strong brand -- -- it ran two Super Bowl commercials
-- -- set it apart from other nonbank lenders.
Before Rocket's blastoff, shares of nonbank mortgage lenders had
done little to impress investors in recent months. Some of the
lenders that listed their shares on the public market in recent
months significantly downsized their offerings. Some never made it
to market because of tepid investor interest.
Shares of Rocket hadn't strayed too far from their listing price
of $18 in the seven months since the company's IPO. The stock
soared to more than $31 in its first month but quickly returned to
near $20.
The first sign of liftoff came late last week, when Rocket
reported impressive fourth-quarter results. Shares rose almost 10%
on Friday. The news of a sizable dividend prompted Rocket's initial
jump in stock price, said KBW analyst Bose George.
"The initial move made some sense, but since then, fundamentals
haven't been driving it," Mr. George said. "It's other factors that
we have a harder time assessing."
Shortly before its public-market debut last summer, Rocket
announced an ambitious expansion target: cornering 25% of the
mortgage market over the next decade. Its market share currently
stands at about a third of that, according to Inside Mortgage
Finance.
"There can be ups and downs in margin and interest rate for a
short period of time...but as we get to the other side of that,
what you find is there are usually fewer competitors," CEO Jay
Farner said during the company's earnings call last week. "And so
for those remaining, not only does the margin stabilize...but it
also gives you...the opportunity to grow market share."
Mr. Farner is scheduled to speak Wednesday morning at a Morgan
Stanley conference.
Two other mortgage lenders saw big stock gains Tuesday. UWM
Holdings Corp. and loanDepot Inc., rose 20% and 13%,
respectively.
Write to Orla McCaffrey at orla.mccaffrey@wsj.com
(END) Dow Jones Newswires
March 03, 2021 10:03 ET (15:03 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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