Mortgage Market Bottom? Why Rocket Companies Could Be a Buy

The real estate sector has seen some troubling signs recently, driving many investors to hesitate when considering stocks in this arena. However, not every stock shares the same level of risk associated with the current housing market. Some stocks offer better risk-to-reward dynamics, creating opportunities for both value and momentum investors.

For instance, Zillow Group Inc. NASDAQ: Z has revealed some weaknesses in the consumer housing cycle, as they reported a decline in transactions and a focus on rental revenue. This indicates that consumers are currently more inclined to rent rather than buy homes.

Such reports might discourage investments in mortgage and real estate finance stocks, as seen through the recent 12% decrease in shares of SoFi Technologies Inc. NASDAQ: SOFI. SoFi's disappointing quarterly earnings have also added to investor apprehension. However, amidst these declines, Rocket Companies Inc. NYSE: RKT has recently demonstrated a positive trend.

The Worst Is Already Priced In for Rocket Companies Stock

Rocket Companies Today

As of now, Rocket Companies is trading at $13.08, showing a modest gain. With the stock hovering at only 61% of its 52-week high, it suggests that the worst possible scenarios may already be factored into the stock price. Additionally, the current low levels of the mortgage market index, unseen since 1996, imply there’s significant potential for growth.

As the broader market for mortgages improves, it is likely that Rocket Companies will see an increase in its earnings and fee activities. Even if the time frame for these earnings to manifest extends, the current discount in its stock price makes it an attractive option for investors.

In contrast, Zillow and SoFi are trading at much higher percentages of their 52-week highs, signaling that much of their future growth may already have been accounted for in their valuations. Furthermore, recent investment activity also supports Rocket Companies' potential; for instance, the Vanguard Group has increased its stake in Rocket Companies by 3.6%, bringing their total holdings to approximately $140.9 million.

The stock has witnessed a notable rally of 12.7% over the past month, suggesting that as investors become aware of the appealing risk-to-reward ratio in Rocket Companies stock, more bullish activity is likely to follow.

The Market’s Perception of Rocket Companies Stock

Another crucial aspect to consider is how Wall Street perceives Rocket Companies' stock. Analysts from the Royal Bank of Canada have set a price target of $18 per share, indicating an upside potential of 38%, hinting at a possible recovery in the mortgage sector.

Furthermore, analysts predict an earnings per share (EPS) increase to $0.14 for Q2 2025, nearly double today's $0.08, which could potentially push the stock to new highs. Investors are now faced with determining how the market anticipates these future earnings. A favorable outlook could mean Rocket Companies would be valued at a premium compared to its industry peers, which it is already approaching.

Currently, Rocket Companies trades at a price-to-book (P/B) ratio of 3.1x, well above the mortgage industry’s average of 1.8x. While some investors may view this premium as excessive, experienced market participants know that a premium often reflects investor confidence in a stock's ability to outperform both its peers and the broader market—a trend that Rocket Companies has already begun to demonstrate.

Over the last month, Rocket Companies' stock has outperformed the S&P 500 by as much as 18%, illustrating a shift in market dynamics and highlighting the potential that this stock carries. Consequently, both the fundamentals and technical indicators align favorably for Rocket Companies, making it an appealing choice for investors seeking strong risk-to-reward opportunities in the market.

Should You Invest $1,000 in Rocket Companies Right Now?

Before deciding to invest in Rocket Companies, it's wise to consider multiple viewpoints. Notably, as some analysts have rated Rocket Companies with a 'Reduce' position, they believe there may be better opportunities available right now.

For those looking for promising investments, analyzing the recommendations of top-rated analysts can be beneficial. They often highlight stocks with the strongest potential, which may or may not include Rocket Companies.

Investors should evaluate the full landscape before making any commitments to ensure they are positioning themselves wisely within this market.

RealEstate, Investing, Stocks