3 stocks to buy as large investors cover their short positions

Whenever traders move their money in a big way, it often pays to follow their trail and reverse engineer what happened that caused them to move into or out of that space. Today, MarketBeat tools detected a major shift in sentiment and capital for an exchange-traded fund (ETF) that is also a key economic indicator.

By hovering over stocks with decreasing short interest data analysis on the site, you can see which stocks are seeing increased buying activity in the form of short covering. Simply put, closing a short position requires the trader to purchase the underlying security to exit. Hence, a decrease in short interest in the 6-month US Treasury bond ETF NASDAQ:XBIL is a significant bullish signal for specific equity sectors, particularly real estate stocks.

For reasons that will become clear in a minute, stocks like them Zillow Group NASDAQ:Z, Prologue NYSE:PLDand even CBRE Group NYSE:CBRE they could end up on the top watchlists of professional traders and investors in the next quarter. But before we get into the details of the deal, you should first understand why investment dollars might be coming here.

Money is going to make a change

Since this ETF holds a large base of short-term (six-month) US Treasuries, an increase in its price would directly mean that bond yields are set to decline. Remember that bond prices and yields move inversely, so bears exiting the ETF is a bullish sign for the economy.

This raises the question of who will see the benefits of cheaper short-term financing first. The real estate sector, especially those related to the construction sector, could be the first to see expanding profit margins and volumes.

Every time a building permit is approved, companies like it DR Horton NYSE: DHI AND Pulte Group NYSE: PHM they begin to apply for short-term financing for construction loans.

These companies have high levels of debt, which are repaid as soon as the construction project is finished. However, it is already possible to see how the interest paid on these loans can significantly impact profitability and incentives to do more business.

It’s no surprise that Warren Buffett – in true crystal ball fashion – has positioned himself in the space, perhaps even expecting a boom in the space to come soon due to falling borrowing rates. Of course, you couldn’t have guessed what the next Buffett would be, which is why CBRE is your next best choice for the development sector.

With a five-year average return on equity (ROE) rate above 12.0%, CBRE becomes one of those companies that can potentially increase your wealth over the years. No wonder analysts are pushing for earnings per share growth of 28.5% for the next twelve months.

Analysts at Raymond James New York Stock Exchange: RJF they also felt comfortable pushing their price targets on CBRE up to $103.0 per share, which requires a 10.6% upside from today’s prices. After the developer names are paid, who will be next in this game of trickle-down economics?

Next in line for a payday

Analyzing the real estate value chain, the following names that are likely to see an increase in turnover are those that find themselves in the middle of the transactional storm. Names like Zillow and D/MAX New York Stock Exchange: RMAX will be called upon to move all the new inventory that the developers throw away.

As for Zillow, analysts are jumping on the rally bandwagon. EPS growth of approximately 32% is expected for the next twelve months. This is where the growth play can be found in this new movement of money due to lower borrowing rates.

What’s even more interesting is how analysts JP Morgan Chase & Co. New York Stock Exchange: JPM they raised their price targets on Zillow to $65.0 per share, which represents an upside of 18.6% from the stock’s last close. Not a bad payday for a work sponsored by building market momentum.

Last but not least, a quiet asset class like Prologis (which operates in logistics centers) will get paid for this boom in activity. Lower borrowing rates will benefit the real estate sector, and other manufacturing stocks will also benefit over time. For example, Prologis centers will be present to make the timely connection of materials.

Analysts see EPS growth of 12.2% over the year for this stock, which may seem conservative until you realize that this company is a $123 billion behemoth. When companies achieve this, pushing double-digit growth is something to get excited about, especially in this industry.

Raymond James raised their price targets on the area once again, pushing for a Prologis valuation of $145.0 per share, implying the stock needs to rise 8.7% on top of its dividend yield of 2.6% today.

Before you consider JPMorgan Chase & Co., you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and JPMorgan Chase & Co. wasn’t on the list.

While JPMorgan Chase & Co. currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here