The WallStreetBets product forum on the Reddit Inc. website on a laptop and the logo on a smartphone arranged in Hastings-On-Hudson, New York, USA, on Friday, January 29, 2021.
Tiffany Hagler-Geard | Bloomberg | Getty Images
Shares of Rocket Companies rallied more than 20% on Tuesday in an astonishing move with no apparent news. Currently, the online mortgage provider makes big short bets against hedge funds and seems to have earned some upward interest from day traders on Reddit’s infamous WallStreetBets.
Nearly 40% of its available shares are sold short-term and it is at the top of the list of US companies in terms of the size of the short-term bet on hedge funds, according to FactSet . This makes it a classic target for meme-obsessed investors, who have been attacking together this year for stocks and options to buy very short companies to eliminate short-term sellers. At this time it was not clear the size of Rocket’s retail interest.
A number of popular posts in the WallStreetBet chat room featured Rocket on Tuesday. One says “I like RKT. $ 1.7 million all-in, let’s go to Yoo,” and quickly pulled out more than 1,700 comments.
“It’s 38% short … When people see it, they think you can destroy marketers,” CNBC’s Jim Cramer told Squawk on the Street, adding that he actually likes the basics of business and management of Rocket Companies.
“I’ve been a big fan of [CEO] Jay Farner i [Chairman] Dan Gilbert … and frankly I don’t understand why the stocks didn’t react to what was really good where they basically exposed a story that just said, ‘We can show how, when rates go up, it hasn’t hurt our business. When rates go down, it won’t affect our business. “
Rocket’s rise could be a sign that the retail mania that was seen on GameStop earlier this year is still a major factor. A month ago, an army of retail investors on Reddit managed to increase the brick-and-mortar video game retailer by 1,500% in two weeks, causing huge pain from selling hedge funds. The wider market also experienced some impacts from the frenzy, as many large investors generally took the risk.
When a stock with high short interest jumps sharply, it could force short-term sellers to hedge their bearish positions to limit their losses. Short hedging tends to fuel stock recovery.
Rocket reported stronger-than-expected gains in the fourth quarter on Thursday, which impressed some Wall Street analysts. Wells Fargo slightly raised the price target and increased its profit estimate for Rocket after its high pace.
“We were impressed with fourth-quarter earnings, especially the ability of its retail GOS margins to recover at retail,” Wells analyst Donald Fandetti said in a note Monday. “RKT appears to be well positioned to have market share if the environment becomes more dislocated from higher rates.”
– Kevin Stankiewicz of CNBC contributed to the reports.
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