Sorry shorts, housing finance stocks make a comeback

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Have we reached peak housing pessimism in Canada? The word has been out on the street now for months that mortgage growth has slowed, giving investors plenty of opportunity to sell their financial stocks and head for other areas. But, has most of the bad news been factored into prices? The answer may be yes given some of the new additions to our April INK Top 40 (available for Canadian Insider Club members).

First National is trading near 52-week highs (click for larger).

High profile lender Home Capital Group (HCG) joined the list along with lender First National Financial (FN). For investors, who find the Home Capital story too risky, First National may provide more appeal. Not only does the company focus on the prime mortgage market, but the stock also offers a prospective annual dividend yield of 6.1% giving investors a bit of a safety cushion. The stock is a member of the INK Canadian Insider Index.

Of course, there is always the possibility that the housing market takes another leg down. If so, new Top 40 entrant Mainstreet Equity (MEQ) may offer a hedge. The company focuses on property development and management in the Western Canada rental market. If buyers are unable or reluctant to secure financing for a home purchase, the rental market could benefit. Unlike First National, it does not pay a dividend. Of the three housing-related newcomers to the Top 40, Mainstreet is the smallest with a market cap of about $423 million.

All three stocks have a Sunny INK Edge outlook. They all also have a potential short-squeeze setup signal as of March 15th which takes into account the amount of short selling versus insider commitment at the firm. We will update our short-signals on INK Research later this week after the release of the March 30 IIROC short selling data, expected in the next day or two.

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INK Edge outlook ranking categories (Sunny, Mostly Sunny, Mixed, Cloudy, Rainy) are designed to identify groups of stocks that have the potential to out- or under-perform the market. However, any individual stock could surprise on the up or downside. As such, outlook categories are not meant to be stock-specific recommendations. For background on our INK Edge outlook, please visit our FAQ#3.

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