HomeStreet: the small bank aiming to double as rates fall

HomeStreet, the California bank betting on doubling as the Fed cuts rates

An investor has peine a position in HomeStreet (NASDAQ:HMST), a small bank headquartered in San Diego with a modest market capitalization whose revenues depend heavily on the West Coast and Hawaii real estate market. The thesis is clear: with the Federal Reserve preparing an aggressive rate cut, the bank's mortgage business should take off. The target is set at $30 per share, upside potential of close to 100% from current levels.

The technical analysis pointing to a move

By Stan Weinstein's criteria, the stock is showing promising signals: the 10- and 30-week moving averages have crossed to the upside, relative strength is improving, and the stock is on the verge of breaking through a historic resistance level between $15 and $16. However, the breakout must come with significant volume. So far, the stock has not given a definitive buy signal. The investor acknowledges that it is a low-volume stock that moves in bursts, and that days of strong gains could see double-digit moves at the open.

The macro catalyst and the risks

The main tailwind is Fed monetary policy. The expectation of rate cuts directly benefits HomeStreet, which finances real estate loans as well as consumer and B2B credit. That said, some analysts believe this potential is already partially priced in by the market. In addition, the bank operates in California, where the affordable housing crisis and social deterioration in some areas create long-term uncertainty. Competition from other property options such as Green Brick Partners, which also boasts solid fundamentals, adds pressure.

Recent news and outlook

HomeStreet recently hit a 52-week high of $15.85, with an annual return of 68.3%. In addition, the company has amended its merger agreement with FirstSun Capital Bancorp, which could alter its shareholder structure. Despite the pogre, the investor insists on patience: the key remains breaking through the $15-16 resistance on volume. In the meantime, the stock offers a high-risk, high-reward opportunity, typical of rate-sensitive small caps.

The puzzling data point: despite the 68% gain over the past year, the stock has not yet technically confirmed the bullish reversal. Patience is not just a virtue here, but a necessary condition.