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)

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