Home Depot Inc (NYSE: HD) is the top home improvement company in the US. It has over 2200 stores in the U.S., Mexico, Puerto Rico, Guam and the Virgin Islands.
What may come to mind first when you see this list is the fact that last year, a lot of those places got hit by serious hurricanes — and many of these places are far from rebuilt.
Though devastating, these are the type of events that work in the favor of firms like HD.
Whether it’s prepping for the storm event or repairing the damage after one, a lot of that traffic goes through HD’s doors.
That is a significant reason why HD stock was up 40% for the 12 months before the February correction.
Since then, it’s lost half that gain. But the selloff is really a short-term buying opportunity.
The Near Term Looks Good for HD
Remember, not only was the economy flashing impressive numbers that were hinting at inflation growing faster than expected, but a new Federal Reserve Chairman was taking the helm. And, the Fed was also selling off the mortgage backed securities it has bought over nearly a decade.
No one knew what that was going to do to the markets. No one was quite sure what he was going to do. And no one had ever been in this position before.
The markets hate uncertainty, and when a major position like the Fed chair is switched it lends itself to unsettling markets. When the selloff happened, the interesting fact was, both bonds and stocks sold off.
Usually stocks sell off and the money flows into the safety of bonds, or vice versa. This time money just came out. That’s very unusual.
But we’ve gotten through all that. And yes, the markets are a bit more volatile. That will likely be a reality moving forward.
However, the adjustments have been made and blue chip stocks like HD will be the winners.
First, rising interest rates will be a fact of life moving forward. That means housing will get more expensive, since financing houses will rise. That will likely slow the expansion of the housing market, lowering supply, which will also raise prices.
Bottom line: a lot of homeowners will decide to fix up their place instead of look for new digs. That means good business for HD.
And that trend may have already started. In Q4, same store sales rose 7.5% for HD, almost doubling the same store sales of its top competitor Lowe’s Companies, Inc. (NYSE: LOW).
Moving forward, one of the only wild cards out there is the tariffs out of DC and whether they will cut into HD products or pricing. But HD leadership already came out with a conservative outlook for 2018, so it’s likely any surprises will be to the upside.
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Source: Investor Place