For the last year, analysts have been talking about the imminent collapse of the housing market and stocks related to the sector.
They were wrong.
Now, interest rates are preparing to head lower, which is set to spark a healthy homebuying season in early 2025.
My opinion? This is likely to be the last real run higher for the housing stocks before we do see a levelling off in demand.
But the next six to nine months are set to rip a few stocks higher, including shares of Rocket Companies.
If you’re not familiar with them, the Detroit-based company offers a litany of personal finance and consumer services.
Rocket is primarily known for its flagship business, Rocket Mortgage, a leading mortgage lender in the United States.
The company went public in August 2020 with its IPO on the New York Stock Exchange and trades with the ticker symbol “RKT”.
With the introductions out of the way, let’s talk about why Rocket Companies is a strong candidate to "Rocket" 50% higher over the next six months.
Yes, interest rates have slowed the mortgage finance business. According to the Mortgage Bankers Association (MBA), mortgage applications are on the rise and the association reports that 2025 should see growth in the industry of more than 15%
The reason, we’re coming out of a “dry” market. High interest rates and home prices have caused a long drought for the housing market as owners held on to their homes and would-be-buyers stuck with renting apartments.
During that drought, Rocket’s fundamentals reflect a company that is improving its current profitability and grabbing market share in the industry.
Last Quarter, the company generated $1.16 billion in revenue, beating Wall Street analyst’s expectations. That revenue represents a 32% increase over the same period last year and the best quarter’s growth since the company’s first year of operations.
That earnings report was accompanied by guidance from Rocket’s management that was lower than analysts’ expectations, but the stock still embarked upon a 20% rally over the next month.
The reason is simple.
Everyone is expecting Rocket and other companies that operate in the mortgage markets to lower their outlook based on the interest rate and housing price combination.
Imagine the same guidance from NVIDIA right now. Shares would be cut in half over the next week.
Investors and analysts see that Rocket is working their company “muscles” out while the industry is slow, knowing that the company will run like no other when things pick up.
Rocket’s current guidance still has the company generating around $1.12 billion in revenue this quarter, a number that will be around 10% lower than a year ago.
We just touched on investors’ sentiment towards Rocket’s stock, but let’s dive a little deeper.
As I indicated above, the market appears to be giving Rocket a pass while the business environment is less than ideal.
Walls Street’s analysts’ have clearly lowered the bar.
Currently, zero (0) of the 15 Wall Street analysts tracking the stock have it recommended as a Buy.
For comparison, Rocket’s competitors in the industry include Wells Fargo (WFC), US Bank (USB) and Loan Depot (LDI).
Let’s use US Bank to compare. USB currently has 25 analysts covering their stock with 14 hold recommendations and 11 Buy.
Even Loan Depot, which only has three analysts covering the stock, boasts one Buy recommendation.
Wall Street is sitting on their hands with Rocket Companies with all 15 covering the stock ranking it a Hold.
That will change.
Currently, the market is still projecting a high possibility for two interest rate cuts by the end of 2024 with more to follow in 2025. Analysts will begin to change their posture by upgrading Rocket Companies as soon as we get close to those rate cuts becoming a reality.
Another area that the analysts will need to act upon sooner rather than later is their average price targets.
The average target on Wall Street for Rocket Companies is currently $11.84, about 15% below the actual current price of the stock.
This means that Rocket’s price is already ripe for a price target upgrade, which will drive buyers to the stock.
Expect to see some analysts act ahead of or immediately after the company’s next quarterly earnings report on August 1.
It’s not just the Wall Street analysts that have a gloomy outlook for Rocket’s stock. Short sellers have been in a position for the stock’s demise.
Current short interest data shows that Rocket’s short interest ratio is 7.2. This indicates that it would take more than 7 days for the shorts to cover their bearish positions.
Historically, my testing shows that a short interest ratio of 6 or higher is indicative of a stock that is likely to see a short squeeze.
Short squeezes happen when a stock continues to rally against the bearish short sellers’ positions. That rally causes them to eventually close their positions out by buying the stock in the market. That often causes a flurry of buying activity that drives prices even higher.
Additionally, almost 15% of Rocket’s float – or shares available to trade in the market – is tied up in those short positions. This means that the stock will be harder for the shorts to cover quicjkly, adding another degree of bullish volatility to the stock when the squeeze happens.
Bottom line is that the market has the bar set very low on Rocket’s expectations, meaning that it is easier for the stock to “impress” investors. When that happens, there will be a large crowd of buyers moving into the stock.
Now is the time to get ahead of that crowd.
Rocket’s long- and short-term price charts are in bullish trends.
In March, Rocket’s 50-day moving average turned bullish as it began trending higher. This happened after the stock hit 2024 lows at $11 in February.
The last bullish trend to emerge on the stock happened in December 2024 when the stock initiated a run from $9 to $15 over a one-month period.
We’ve seen the stock battle with that $15 level and win as the bullish 50-day moving average indicated a stronger momentum environment was building.
Just two weeks ago, the stock broke above $20 and investors took a rest, allowing the stock to pull back to nearly $18 today. This is the opportunity that many investors are looking for as the stock is getting ready to commence another 20-40% move higher.
Rocket Shares have run into light resistance at $20 over the last two weeks, making this a “Trigger Price” for the next move higher.
A breakthrough that $20 price will trigger much of the sentiment shift that I identify above.
The likely target for that increased buying activity will be $30, but that’s just the target for the next 4-6 months.
Watch for next week’s Fed announcement to fuel more buying activity in Rocket Industries as analysts and investors figure out that this stock’s time has come.
Keep in mind that the company’s mortgage business is about to become inundated applications and new business as the housing market starts to emerge from the drought with buyers and sellers becoming much more active as the 2025 buying season kicks off in February.
Rocket’s stock moved into a long-term bull market trend in November of 2023. It represents the first technical long-term bull market trend for the stock since it’s IPO in 2020.
From the monthly chart perspective, an improvement in the fundamental picture for Rocket’s industry along with a shift in investor sentiment turns the chart target to $27.50.
That’s an aggressive 50% move from its current prices, but again… we’re talking about a stock that the market appears to just be waiting for an opportunity to jump on. This is a simple case of getting in front of a crowd.
Stock Investors may want to eye adding the stock to a portfolio at its current prices with a stop-loss strategy focused on cutting losses if Rocket shares drop below their 200-day moving average or $14.
Long-term bulls that re interested in leveraging Rocket’s potential move to $22.50 may want to consider a LEAP option that expires in 2026.
For example, the $12 call that expires on January 16, 2026, is currently priced for $4.20 a contract.
If shares of Rocket Companies hit that $22.50 target before June 27, 2025, that option will have a theoretical value (using Black Scholes Pricing Model) of $10.90, a 160% gain for the LEAP option.
As always, please make sure that you have the necessary education when trading options and understand the risks involved.
