Rocket Stock Is the New Meme Trade. Move Over, GameStop.
Rocket, the parent of Quicken Loans, has surged 28% this week.
Rocket, the parent of Quicken Loans, has surged 28% this week.
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 28% since the end of last week. Nearly 377 million shares traded hands on Tuesday alone, more than a 10-fold increase from the previous day. After surging 71% on Tuesday, the stock lost some steam on Wednesday, falling 33%, or $13.59, to $28.01.
Like GameStop, Rocket is heavily shorted. As of this week, 46% of its shares available for trading were being shorted by investors betting the price would fall, according to S3 Partners, a data-analytics firm. That was up from about 33% in late January and 17% in mid-September, according to FactSet.
Trading of Rocket shares was halted several times this week because of its volatility.
Individual 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. They have relished in the company’s name——Rocket——an apt one for their goal of higher prices.
“The $RKT is fueled and ready for liftoff,” one user wrote early this week.
The company stock symbol, RKT, was mentioned in nearly 16,000 Reddit comments on Tuesday, according to data from TopStonks.com, a website that tracks equities mentioned on Reddit. That is up from just over 6,000 on Monday and less than 1,000 on most days last week.
Rocket announced last week it would pay a one-time dividend of $1.11 per share later this month, citing its “highly profitable and capital light business model.” Some investors saw the move as a way to fend off short sellers. Short sellers are obliged to pay any dividends to the broker they borrowed shares from.
The company’s excess capital at the end of the fourth quarter made the dividend possible, Rocket CEO Jay Farner said at a conference Wednesday morning.
“We were pretty proud to be able to offer that to our shareholders,” Mr Farner said. “We think more of dividends as special dividends because we want that flexibility to make the right investment for the long-term growth of the organisation.”
Rocket has other upsides. Rising mortgage rates are 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 non-bank 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.
Rocket said last week that its mortgage originations more than doubled in 2020. It said it expects continued high origination levels despite weakening margins.
The amount lenders earn when they sell each loan has started to drop. Quicken’s gain-on-sale margin was 4.41% in the fourth quarter, down from the third quarter but well above the 3.41% it recorded a year earlier. It expects its first-quarter margin to be between 3.6% and 3.9%.
Cleveland Cavaliers owner Dan Gilbert helped found Quicken Loans in the 1980s and still holds the majority of its shares.
Ali Habhab has watched the stock’s recent ride with interest but doesn’t plan to sell his shares any time soon. Mr. Habhab, who is 25 years old, instead hopes his returns will bring him closer to his goal of retiring at 40. He bought 1,000 shares in Rocket shortly after the company’s IPO in August.
Mr. Habhab, who works in automotive manufacturing, said he was familiar with Quicken Loans long before parent company Rocket decided to go public. Mr. Habhab lives in Detroit, where Rocket is based, and has friends who started careers at the company or one of its subsidiaries.
“With all that factored in, it was a no-brainer to put some of my money where it belongs and where it will grow,” Mr Habhab said.
Another major nonbank mortgage lender, UWM Holdings Corp. is up 27% so far this week.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
There’s more to building substantial savings than putting away what you can after paying your bills
Whether you’re starting your wealth creation journey in your 20s, 30s, 40s, 50s or beyond, the core principles remain consistent. Create more income, manage your savings, and invest intelligently.
We look at the best wealth creation strategies depending on which decade you’re in right now.
In your 20s
The key to wealth creation is to start early. So if you’re reading this and you’re in your 20s, you’re well ahead of the game.
Accept that the greatest investment you can make is in yourself and your ability to earn an income.
“If you want to build wealth in Australia, you need to have a plan to be earning more than $100,000 per annum either now or within the next five years,” financial planner Chris Carlin says. “Most finance experts focus on ways to reduce your expenses, which is important, but for sustainable long-term wealth creation, we believe that you should be focusing on ways to increase your income rather than just focus on reducing your expenses.
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“If you need to change careers, study, start a business or ask for a pay rise, do whatever it takes to get your income above that level while you’ve got time on your side. Next step is to buy a house, because the sooner you get your foot in the door of the property market, the easier it will be for you to build wealth over the long term.”
Bear in mind that your first home doesn’t need to be your forever home. Think of it as your foot in the door to build wealth.
“If you’re accessing a first home buyers grant, you only need to live in it for 12 months and then you can consider converting it into an investment property or selling it,” Carlin says.
In your 30s
This is the time in life to establish a regular investment strategy. Consider long-term investments that you can lock up for five to 10 years. You can take on more risk at this time of your life, which can generate higher returns.
Set your priorities for life, and don’t take on more debt than you can afford to pay back.
Also, keep track of expenses and income with budget planners — a great habit to get into now.
There are many other things you should be considering too, such as topping up your super above the Super Guarantee and reviewing your personal insurance and investments.
In your 40s
This can be an expensive time of life, particularly if you’re supporting a family. But you’re probably in a more stable financial position by now, giving you a good springboard into investments such as a diversified portfolio of shares.
Investing in property is the best option at this age, whether it’s the family home or an additional property that can be utilised for an Airbnb. Also, make sure you rein in your debt. A bank loan for a mortgage is one thing, but debt on credit cards is hard to justify by this stage of your life.
Invest in your retirement by topping up your superannuation. Even an additional $50 a month will benefit from the wonders of compound interest.
Generally speaking, shares outperform other investments over the longer term. And if you invest in companies that pay dividends, you’ll benefit from being paid part of the company’s profits, generally twice a year. While dividends are less common in a downturn like we’re having now, they are likely to increase once company profits recover.
In your 50s (and beyond)
If you’re in your 50s or older, traditional financial planning tends to encourage less aggressive asset classes as people near retirement.
If you’re in a low asset position due to divorce and having to start again or you’ve missed the real estate boom and are still renting, the main focus should be on controlling spending and pumping money into super and savings and then investing aggressively, advises financial adviser and money coach Max Phelps.
“Property investing is either an option through super, or outside of super if the deposit can be raised,” he says. “Outside of super, properties with scope to improve, extend or subdivide will help build capital faster than normal market growth, to help catch up.”
Share investing could also be an option, with particular focus on high growth funds, such as international securities.
“Controlling spending at a level just above the aged pension should be a key focus, otherwise it’ll be a big step down when you finally stop work. Use a good budgeting and planning app,” Phelps says.
However, if you own your own home, and have a standard super balance, focus on the home and perhaps look at downsizing opportunities in the future.
“Maximising super contributions is likely to be beneficial to get the tax savings, potentially using a transition to retirement strategy,” he says. “For those looking for a sea or tree change, we would always recommend keeping the family home until a year or two after moving to a new area to make sure it really suits.
“For those wanting to stay in the same home forever, releasing equity to buy a couple of high yielding investment properties could be a good option, with the time to pay down the mortgages and keep them for additional income for retirement,” Phelps says.
If your own home is paid off and you have a high super balance and a strong asset position, the focus will likely be on asset protection and less risky asset allocation for investments, he says.
Whatever age you are, consider getting help now. The right financial advice early can set you on the right track.
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