Bears may have gotten way too aggressive in their trading lately. This is especially true with stocks like SoFi Technologies Inc. (NASDAQ: SOFI) and Whirlpool Co. (NYSE: WHR). Investors may soon learn how rising short interest in these two names could catapult them to new highs.
Both are highly exposed to the real estate sector, where the construction value chain is going off the charts. After all, Warren Buffett has an excellent reason to invest in names like D.R. Horton Inc. (NYSE: DHI). Now that the trend is clear as day, Wall Street could also favor these two.
With institutions starting to circle SoFi and Whirlpool, you can’t ignore the potential for a short squeeze. Because closing short positions requires buying back stock, rising stock prices could make these bears feel maximum pain and be forced to close positions. Thinking back on the GameStop Corp. (NYSE: GME) saga, history won’t repeat itself, but it sure could rhyme.
SoFi Could Prove Bears Wrong
Now that the Federal Reserve (the Fed) pointed to potential interest rate cuts for this year, mortgage financing could become cheaper and more accessible to new homebuyers. According to the FedWatch tool available at the CME Group Inc. (NASDAQ: CME), traders see these cuts coming as soon as May or June.
The window is closing for you to take advantage of how SoFi could see a wave of demand from new homebuyers looking for more affordable financing. But don’t just follow the idea; check the facts.
Analysts on Wall Street believe that the stock's earnings per share (EPS) could jump by as much as 257% in the next 12 months. Analysts don’t typically make such bold projections, so they must have a good reason to do so.
Knowing what you know now, one reason could be expected profits from future mortgage demand. The National Association of Realtors (NAR) just restructured how real estate agents get paid, making the old 6% commission model flexible.
Cheaper closing costs can bring home prices down, along with Buffett’s bet on a construction boom to inject new housing inventory to help prices normalize.
Spotting these trends – and opportunities -asset managers like the Vanguard Group decided to buy shares of SoFi in the past quarter. As of March 2024, ownership filings show Vanguard increased its position by 6.6%, representing a roughly $53 million transaction.
Whirlpool is Next in Line
Whenever a new home is bought, it typically comes with a roof and a furnished kitchen. Most of these kitchens match the way that Whirlpool and LG Display Co. (NYSE: LPL) fill the appliance section of the home.
Knowing this, it would follow that all of these new homes will be injected into the housing inventory after SoFi’s EPS expectations finance them. They will hire Whirlpool to fill their kitchens and laundry space with their appliances.
Again, the story can sound great, but where is the trend? After initiating coverage on the stock, analysts at Loop Capital see a valuation with a 2024 price target of $140. After increasing their exposure to SoFi stock, Vanguard also saw it fit to be in Whirlpool.
With a net worth of $796 million, Vanguard owns up to 12% of Whirlpool stock. Asset managers aren’t likely to back a company in which they don’t see a bright future; after all, millions in pension funds are at stake.
You now have two great ships, but is there enough wind to get them to where you want to go?
Squeeze for Profits
SoFi can say that up to 17% of its outstanding shares are held in short positions. While this can be considered high for any stock, you should see this number relative to other points in time for SoFi to understand the current sentiment.
17% in short interest is the highest in three years for SoFi, which compares to the average of only 6% during 2022 and 2023. Bears chose the wrong year to go short on this stock, and some are already regretting the decision; over the past month, short interest decreased by 2.5% to add some buying pressure.
Whirlpool is similar, with 15% of its shares held in short positions; it is the highest level since the first quarter of 2023. Month-to-month, short positions have risen by 12%, meaning that bears see some more challenging times ahead for Whirlpool.
If betting on timing, they could think that Whirlpool will be the last to see profits on this new construction boom. These bears are up for a rude awakening, as the stock rallied 8.2% in the past week alone.
