The housing market is booming as consumers rush to the burbs. The world is realizing that the work from home trend may be the new normal, and with mortgage rates sitting at their lowest levels in history, millennials have run out of reasons not to purchase that home they have been saving up for.
New home sales in July spiked to the highest level since the height of the housing bubble in 2006. Several well-positioned equities are driving to continuously new highs amid this suburban scramble.
Rocket Mortgage IPO
Rocket Companies (RKT) IPO last week was well-timed, with mortgages going like hotcakes. Rocket Mortgage launched its revolutionary digitally incepted mortgage loan application 5 years ago, and the company has taken off since. This Quick Loans business has illustrated a compounded annual growth rate (CAGR) of 19% in mortgage volume, gaining massive market share every year, controlling 6.7% as of 2019 (up 1.7% from the year prior).
RKT IPO’d at $18 per share, valuing the company at $36 billion on August 6th. The public markets have since ripped this stock higher towards $30 per share (roughly $60 billion market cap) as investors & traders seek an equitable price.
Preliminary Q2 results indicate that Rocket had an unbelievable quarter. The unaudited figures illustrated incredible growth, with profitable topline expansion of 437% year-over-year. This growing online economy, combined with the rush to suburbia, has created the perfect storm for this innovation-driven lending business.
The stock is trading at a reasonable price, with a 2020 P/E of less than 10x, if the second half of 2020 can match the first. I think this stock is a strong long-term investment today if you can stomach short-term volatility.
With the world utilizing technology more than ever, Rocket Mortgage is poised to explode in the roaring 20s.
Other Beneficiaries Of The Scramble To Suburbia
Homebuilders have been on a tear as well with the largest new home producer D.R. Horton (DHI) is up over 43% so far this year, surging over 160% from its March lows. This company has not missed a beat since the pandemic began as its 2020 income statement looks unscathed.
Horton was able to report record top and bottom-line figures last quarter. I expect this business to continue expanding through the rest of the year, but it appears that much of the upside has already been priced in.
Another under the radar stock that has seen a strong tailwind from the massive level of new home sales is US lumber giant Weyerhaeuser (WY). WY is effectively flat for the year but up 116% from its March lows, and it looks like it could go higher.
Lumber futures continue to surge as home builder’s demand swells. WY has tracked with lumber futures almost perfectly in the past, but in recent months lumber futures have broken out to its highest price in recent history, and WY hasn’t followed suit yet. This could be a rare opportunity to jump into the lumber rush after it happened.
I think there is an excellent long-term opportunity in Rocket’s recently IPO’d shares. RKT is still subject to short-term growing pains as investors & traders attempt to discover the real value of this pioneering fintech enterprise.
WY looks poised to surge if wood prices can remain buoyant. Lumber futures seem to be on an endless rally towards the moon, and Weyerhaeuser is a primary beneficiary.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.