If inflation continues to moderate, future interest rate hikes will be less aggressive and may stop by the end of the year, suggests Mark Skousen, editor of Home Run Trader.
That’s positive for companies that depend on low interest rates. And it is especially good news for the mortgage industry. My advice? Let’s add Rocket Companies (RKT) to our line-up.
Founded in 1985, and based in Detroit, Rocket Companies is the country’s largest mortgage lender. The firm took a complicated, paper-intensive process down to a simple app that can be completed quickly and from the convenience of a smart phone.
The company’s brand quickly became synonymous with a simple, hassle-free application process that would lead to rapid loan approvals. The company has originated more than $1.5 trillion in home loans. It has completed more than one million e-closings. And it enjoys a better-than-90% client retention rate.
Rocket also owns Amrock (a leading national provider of title insurance, property valuations and settlement services), ForSaleByOwner.com (a leading online marketplace for customers to buy or sell properties on their own), Rocket Auto (a virtual marketplace where consumers can arrange car loans) and Rocket Loans (an online personal loan company).
CEO Jay Farner says the company executes for the long term, invests in employees (“the lifeblood of our success”) and obsesses over client satisfaction.
In a recent letter to shareholders, Farner said, “We have a proven record of leading the industry and being prepared no matter where the market takes us … Even with the title of largest mortgage lender, we believe there is significant opportunity ahead and fresh strategies to reach even more clients.”
He’s not just talking. In August, he purchased 283,000 shares of Rocket — more than $3 million worth — at up to $10.82 per share. He then purchased another 190,100 shares.
You might wonder why he is buying when the economy is slowing down and the housing market is cooling off. Perhaps he believes the slowdown is temporary, or the stock is so cheap it doesn’t matter.
Rocket Companies generated revenue of more than $9.9 billion over the last 12 months. It enjoys a 39% operating margin. And management is earning a whopping 40% return on equity.
Yet, the stock sells for seven times earnings and only two times book value. And the CEO is piling in while the shares are still cheap. If the man who knows the company best is adding to his position, you might find it wise to add to your own.
