2 stocks ready to take off due to the increase in short-term interest

The bears may have become too aggressive in trades lately. This is especially true for titles like SoFi Technologies Inc. NASDAQ: SOFI AND Whirlpool Co. NYSE:WHR. Investors may soon discover how growing short-term interest in these two names could catapult them to new highs.

Both are heavily exposed to real estate, where the construction value chain is going off the charts. After all, Warren Buffett has a very good reason to invest in names like D.R. Horton Inc. NYSE: DHI. Now that the trend is clear, Wall Street could also favor these two.

With institutions starting to surround SoFi and Whirlpool, the risk of a short squeeze cannot be ignored. Since closing short positions requires repurchasing shares, rising stock prices could cause these bears to feel the most pain and be forced to close positions. Thinking back to GameStop Corp. NYSE: GME saga, history won’t repeat itself, but it sure could rhyme.

SoFi could prove the bears wrong

Now that the Federal Reserve (Fed) has indicated potential interest rate cuts this year, mortgage financing may become cheaper and more accessible to new homebuyers. According to the FedWatch tool available at CME Group Inc. NASDAQ: ECMTraders expect these cuts to come as early as May or June.

The window is closing for you to take advantage of how SoFi may see a surge in demand from new homebuyers looking for cheaper financing. But don’t just follow the idea; verify the facts.

Wall Street analysts believe the stock’s earnings per share (EPS) could increase by up to 257% over the next 12 months. Analysts typically don’t make such bold projections, so they must have a good reason to do so.

Knowing what you know now, one reason could be the expected profit from future mortgage demand. The National Association of Realtors (NAR) just restructured how real estate agents are paid, making the old 6% commission model flexible.

Cheaper closing costs may push home prices lower, 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 Vanguard Group decided to buy SoFi shares in the last quarter. As of March 2024, ownership documents show Vanguard increased its position by 6.6%, representing a transaction of approximately $53 million.

Whirlpool is next in line

Whenever a new house is purchased, it typically comes with a roof and a furnished kitchen. Most of these kitchens match the way Whirlpool and LG Display Co. New York Stock Exchange: LPL fill the appliance section of the house.

Knowing this, it would follow that all of these new homes will be pushed into real estate inventory after SoFi’s EPS expectations fund them. They will hire Whirlpool to fill their kitchens and laundry rooms with their appliances.

Again, the story may seem fantastic, but where is the trend? Having initiated coverage of the stock, Loop Capital analysts forecast a valuation with a 2024 price target of $140. After increasing its exposure to SoFi stock, Vanguard saw fit to also get into Whirlpool.

With a net worth of $796 million, Vanguard owns up to 12% of Whirlpool shares. Asset managers are unlikely to back a company in which they do not see a bright future; after all, millions in pension funds are at stake.

Now you have two large ships, but is there enough wind to take them 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 may be considered high for any stock, you would need to see this number relative to other times for SoFi to understand current sentiment.

The 17% short interest is the highest in three years for SoFi, compared to the average of just 6% during 2022 and 2023. Bears picked the wrong year to short this stock, and some did they are already regretting the decision; Over the past month, short interest has declined 2.5% to add some buying pressure.

Whirlpool is similar, with 15% of its shares held in short positions; this is the highest level since the first quarter of 2023. On a monthly basis, short positions increased by 12%, meaning bears see tougher times ahead for Whirlpool.

If they were betting on timing, they might think Whirlpool will be the last to see profits on this new construction boom. These bears are in for a rude awakening, as the stock has rallied 8.2% in the past week alone.

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