Andaz Private Investments, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. Andaz’s investment return in November 2021 was +0.95%. In December last year, the portfolio climbed approximately +3% during the first 8 days but ended down -4.39% for the month. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Andaz Private Investments, in its Q4 2021 investor letter, mentioned Rocket Companies, Inc. (NYSE:RKT) and discussed its stance on the firm. Founded in 1985, Rocket Companies, Inc. (NYSE:RKT) is a Detroit, Michigan-based consumer lending company with a $21.9 billion market capitalization, and is currently spearheaded by its CEO, Jay Farner. Rocket Companies, Inc. (NYSE:RKT) delivered a -21.14% return since the beginning of the year, while its 12-month returns are down by -57.21%. The stock closed at $11.04 per share on March 11, 2022.
Here is what Andaz Private Investments has to say about Rocket Companies, Inc. (NYSE:RKT) in its Q4 2021 investor letter:
“This volatility i.e., the behaviour of others, is a result of market participants pursuing a few thematic ideas. One is that the cessation of money printing by central banks and the flagging of interest rate rises may favour near-term cashflow oriented stocks over tech stocks. Second, a few stocks that we hold are also held by ETFs run by ARK Investment Management. ARK has been experiencing outflows, as well as bets against their ETFs, and this is amplifying price movements in all of ARK’s stocks. Omicron is also disrupting and impacting societies/economies, obviously, but more broadly this pandemic is now affecting decision-making to the degree where: a) pessimism in one area is translating into over-optimism in other areas, and b) complacency in thought is somehow simultaneously coupled with hyperactive cynicism.
This can be observed not only across various asset classes, but even within a single asset class e.g. comparing various commodities, comparing bonds, equities, and so on. All of this is resulting in price action that is less about long-term security/stock selection or short-term execution, but the path/behaviour of prices during the middle phase.
For example, Rocket Companies’ share price (RKT) closed -5% on the last day of 2021 but climbed +5% on the first day of 2022. Yet, on a trailing 12-month basis, Rocket generated US$15 Billion in revenue and US$8.2 Billion in pre-tax income. Using a $14 share price, RKT has a market cap of around US$28 Billion i.e., 3.4x pre-tax earnings. Its free float is around $1.8 Billion – as most of the shares are held by Dan Gilbert and Rocket employees.
When a company is generating this amount of cash and is diverting its cash into share repurchases (the latest reported figure was US$150-160 million) against a free float of $1.8 Billion, the math simply works in our favour.
Rocket also announced they will allocate $1.275 Billion of the company’s cash to acquire a consumer finance tech company. The company is called Truebill and is known in the USA for its app to help younger consumers stay on top of their expenses, subscriptions, budgets, and improve credit scores. This acquisition helps the company gain new customers and grow its existing business, as well as add to its existing lines of business with recurring revenue.
RKT is simply mispriced and an arbitrage-like opportunity.”
Our calculations show that Rocket Companies, Inc. (NYSE:RKT) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Rocket Companies, Inc. (NYSE:RKT) was in 20 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 17 funds in the previous quarter. Rocket Companies, Inc. (NYSE:RKT) delivered a -57.21% return in the past 3 months.
In December 2021, we also shared another hedge fund’s views on Rocket Companies, Inc. (NYSE:RKT) in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
