The Bull Market Continues to Grow. 3 Reasons to Buy Home Depot Stock Like There’s No Tomorrow

Home Depot (NYSE:HD) It is one of the best-performing stocks of all time and still maintains impressive competitive advantages today.

It is the largest company in the massive home improvement retail industry, whose total addressable market is close to $1 trillion. Mainly engages in bilateral activity with competitors Lowe’sIt allows both companies to earn wide operating margins and generate returns on invested capital.

Home Depot has generally struggled since the height of the pandemic, as the housing market has been stagnant and the company’s business is closely tied to home sales and home renovation projects. However, this leaves the stock likely to rebound in the coming years as the housing market should recover. Let’s take a look at three reasons to buy stocks.

Image source: Home Depot.

1. Housing recovery is approaching

After the pandemic-induced housing boom faded, interest rates rose and home sales fell, leading to a slowdown in Home Depot’s business.

However, the Fed started its interest rate cut last month with a 50 basis point reduction. Although mortgage interest rates have not yet responded, they are expected to fall as the Fed expects to cut interest rates another 1.5 percentage points by the end of next year.

Existing home sales are also about 30% below where they were before the pandemic began, meaning there’s plenty of room for recovery in the housing market. As existing home sales rebound, growth at Home Depot is also expected to accelerate.

Additionally, there is a housing shortage in the millions in the United States, and both presidential candidates have plans to fill that gap. While the balance of supply and demand in the domestic housing market is normalizing, Home Depot seems to be the winner.

2. Home equity levels are at record highs

While housing sales slowed down, prices increased. More Americans are staying in their homes longer, which means record home equity. Americans now have more than $32 trillion in home equity, and as home equity loans and lines of credit decrease, it will become easier for them to tap into that. The average borrower’s equity is currently around $214,000, and that money will likely increase spending on home improvement projects.

Likewise, the stock market being at all-time highs is another source of money that Americans can devote to such projects.

These developments should complement the housing recovery and lead to a potential increase in Home Depot stock.

3. Competitive advantage is strong

Home Depot’s sales have fallen recently, with comparable sales falling 3.3% in the fiscal second quarter (ended July 28). The company is calling for a similar decline in sales of 3% to 4% for the full year.

Despite the weakness in sales, Home Depot’s margins remain strong. The company is on track to post an operating margin of between 13.5% and 13.6% in fiscal 2024. While this is down from recent highs, Home Depot is well positioned to improve its profitability during the recovery.

These figures should also reassure investors that the company can overcome any challenges or headwinds that arise in the industry.

Why buy Home Depot?

Home Depot’s valuation may not look attractive right now price-earnings ratio 27, but there’s a lot of leverage when it comes to growth. Additionally, the acquisition of SRS Distribution will begin to yield results and help the company better penetrate the professional market.

Home Depot is a proven winner with a wide economic moat, and the company is poised to benefit from the housing recovery and efforts to close the housing shortage across the United States.

Should you invest $1,000 in Home Depot right now?

Before buying shares in Home Depot, consider:

Motley Fool Stock Advisor The analyst team just determined what they believe to be Top 10 stocks for investors to buy now… and Home Depot wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the coming years.

Think about when Nvidia You made this list on April 15, 2005… if you invested $1,000 on the date we recommended, You would have $867,372!*

Stock Advisor provides investors with an easy-to-follow success plan, including guidance on portfolio construction, regular updates from analysts, and two new stock picks each month. Stock Advisor there is service more than four times Return of the S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 21, 2024

Jeremy Bowman It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a feature disclosure policy.